Get The Low-Down On Home Loan Top-Ups

Source : The Business Times, December 8, 2008

Banks don't usually ask for fresh valuations despite price slide

With the slide in property prices and a looming long economic downturn, some borrowers may be forgiven if they harbour thoughts of getting calls from their banks to top up their home loans.

But banks told BT that as long as borrowers are current in their monthly loan instalments, they will not ask for fresh valuations which could then lead to a top-up.

A DBS Bank spokeswoman says a key consideration when granting loans is the repayment ability of the customer.

'As such, when the customers are promptly servicing their monthly repayments, the bank will not usually require the customer to top-up the housing loan.'

Even those who took up loans on the deferred payment scheme (DPS) need not worry about the fall in the value of their homes, she says.

'Customers who took up loans on the deferred payment scheme would have had the approval granted based on the valuations at the point of the submission of their loan applications. And likewise, the approval will take into account the repayment ability of the customer.

'By the same token, when the loan is disbursed, as long as the customer can meet the monthly repayment amounts, the bank will not usually take any other course of action against the customer, even if valuations of these properties are now lower than that at the time of purchase.'

In reply of BT queries, a Monetary Authority of Singapore spokeswoman says non-performing housing loans are currently low.

'While we expect these to rise, the increase will not be significant,' she says.

'Banks in Singapore do not generally repossess a property once a loan is in default. Repossession is usually a final step after exhausting other avenues with the borrower, such as restructuring the loan,' she adds.

The MAS, however, does not intervene in such commercial decisions by the banks, she adds.

A United Overseas Bank spokeswoman says it is currently not the bank's practice to require a fresh valuation for DPS properties.

DPS borrowers typically begin paying their instalments some two years after they bought their homes.

Some observers are expecting a rash of defaults on the part of DPS buyers when the properties are completed and loan drawdowns begin.

Vibha Coburn, Citibank's head of secured finance solutions, says it is not the bank's usual practice to ask for top-ups in the case of existing borrowers who are servicing their loans on an ongoing basis.

'While we may conduct valuations on properties held within our loans portfolio, these would form part of our internal portfolio management and due diligence processes,' she says.

The UOB spokeswoman says the bank periodically reviews its mortgage portfolio, including the update of property values.