Singapore Home Loan: Banks Turned the Tables on Home Owners

BANKS TURNED THE TABLES ON HOME OWNERS
07 Nov 2008 www.PropertyBUYER.com.sg
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THEN (2006 and 2007)

BANKS WERE EAGER
The process of sourcing for Financing for your New Home, under construction home or refinancing is fairly easy. Banks are falling over themselves to lend out money. Anything can be considered.

CUSTOMERS WERE BOSS
Customers would shop for the cheapest package, the best loan, etc. You find the best loan then you submit into the bank for approval.

FAST FORWARD TO 2008

BANKS ARE NOW WARY
Now banks view anything that walks as a sub-prime risk. With properties valuations dropping, many banks have tightened credit and lending only to what they consider as good areas. Some banks have indefinitely freezed Term Loans. 

CUSTOMERS ARE SQUEEZED
Now, customers are increasingly not in a position to obtain the best possible packages. The old method of finding the best package and then applying for a loan does not work anymore unless you have millions of dollars and a stable income. Now it is, "which bank dares to lend you money." If you pass their Credit ACID tests, then you choose from the packages that they have and you optimise the mix and match of packages.

It is amazing quite how quickly this tide turns. Many people got wrong footed and burnt.

What is sad is, most banks are flushed with cash during the good times. Banks will try to lend money to you when you least need it, Cheap credit leads to too much money chasing after assets and hence  asset price inflation. Many people end up over-paying for properties.

When the tide turns, property prices start to fall, the bank’s Loan to Valuation (LTV) increases. This causes the banks pain, if the fall is severe enough (i.e. >20%), that will typically wipe out the most recent Home Loans which were borrowed at 80% financing. Banks will start to tighten.

During this time, many people will need money for various reasons. And Banks, instead of lending out money to smooth out the economic decline for a soft landing, further tighten their credit, exacerbating the severity of economic slowdown.

It is a typical boom and bust cycle. So don’t let this BOOM and BUST economic Chameleon catch you unprepared, it could be painful.

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1. Singapore Home Loan: Should I stretch my home loan?

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