A quick guide to why executive condo buyers should keep caution

You wouldn't want to stretch your wallet limit.

According to Savills, with escalating home prices and condos being sold at a blistering pace, the government has taken new steps to restrict all new home loans to a maximum of 35 years.

Here's more from Savills:

While the impact on EC home purchases is likely to be limited, the growing demand for pricier EC homes may raise some red flags.

For instance, if a 35-year-old couple purchases an EC penthouse for S$1.3 million, their monthly repayment based on a 30-year loan and an 80% loan-to-value (LTV) ratio, would be S$3,600 given a 1.5% interest rate.

As there is a S$12,000 income ceiling prerequisite for all EC buyers, the recommended monthly repayment is S$3,600 per month based on a 30% loan to gross income ratio. Assuming the couple utilises both their maximum Central Provident Fund monthly contributions in their ordinary accounts which amount to about S$2,300 to pay for their mortgage instalments, they would still incur a S$1,300 cash top-up per month.

If interest rates rise to between 3% and 4%, the monthly mortgage instalment is estimated to be between S$4,400 and S$5,000, amounting to a possible monthly cash top-up of S$2,100 to S$2,700.

Although incomes may have risen by then, and while interest rates do not increase exponentially overnight, would their finances be overstretched, especially if they have children, elderly parents to care for and other big ticket expenses like car instalments and insurance premiums to pay?

On closer inspection, based on the S$12,000 income limit, a purchase of over S$1.1 million may begin to stretch the buyers’ wallets once interest rates rise above 3%, while buyers of ECs priced below S$1 million would be in the ‘safe zone’ even if interest rates were to climb to 4%.