Budget 2013: Updates

Following calls from several Members of Parliament (MPs) to review the recently-introduced curbs on car loans, the Government has reacted by launching several initiatives to ease the burden of certain affected groups. They include: - Exemption from car loan measures for the physically disabled - Extension of ownership period for used car dealers - Depreciation to be taken into account in calculating loan limit for used cars

OneShift Editorial Team

11 Mar 2013

Exemption from car loan measures for the physically disabled

Physically disabled persons or their caregivers (who are either living at the same address, are immediate family members or are appointed by the court) will be allowed to purchase one car without being subject to the restrictions.

Used car dealers to get extension

The Land Transport Authority (LTA) has given used car dealers some reprieve by extending the temporary transfer scheme from 9 months to 1 year. This gives dealers a longer period of time to find buyers for the cars they own, and helps them adapt to the new loan regulations.

Depreciation to be taken into account in calculating loan limit

The Monetary Authority of Singapore (MAS) has announced that it will take into account depreciation when calculating the Open Market Value (OMV) of a used car to determine which tier the vehicle falls under with regard to the loan-to-value ratio.

In a press release, the MAS said that it “will adopt a straight-line depreciation in the value of the original OMV over 120 months (10 years) to derive an applicable OMV for purpose of determining the appropriate loan-to-value ratio.”

This may make a difference for cars with an OMV in excess of $20,000. If purchased as a new vehicle, the loan limit will be capped at 50 per cent. However, with this new ruling, should the applicable OMV for the car (after depreciation is factored in) fall below $20,000, buyers will be able to apply for loans of up to 60 per cent of the purchase price. For example, someone who buys a 60-month (5-year) old car with an OMV of $30,000 when new will be allowed a 60 per cent loan, as the applicable OMV of the used car is calculated to be $15,000.

Justifications for the tightening of finance regulations

In his round-up speech for Budget 2013, Deputy Prime Minister Tharman Shanmugaratnam explained that the new measures are aimed to relieve inflation. Beyond encouraging financial prudence among buyers, the secondary goal was to cool the COE market and bring prices down. However, he mentioned that the changes are not permanent and will be reviewed later.

The Government is also moving to close loopholes of the new loan restrictions, since credit companies which are not regulated by the MAS are not affected by the changes, unlike banks and finance houses.