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HDB concessionary loan – parents should not rely on children’s income to get one

Ravi Philemon

Minister for National Development answers parliamentary question on allowing parents to rely on children’s income to get HDB concessionary loan for purchase of a second flat.

Older Singaporeans should not rely on their children’s income for another HDB concessionary loan, said the Minister for National Development.

The Minister was responding to a parliamentary question asking:

“…in circumstances where low-income parents who co-own their HDB flats with their children decide to sell their flats to enable their children to be removed as co-owners so that the children can buy flats in their own names, whether HDB can allow these parents to rely on their children’s income in deciding whether or not to grant a concessionary loan for a purchase of a second flat in the parents’ names.”

In responding to the question explaining why these parents should not rely on their children’s income to get another HDB concessionary loan, the Minister said:

“As part of credit assessment for housing loans, HDB and financial institutions will only consider flat buyers’ incomes because they are the ones who are borrowing and will be servicing the mortgage.

For parents who co-own their HDB flats with their children, and wish to purchase another flat when the children move out, they can consider right-sizing to a smaller unit that is within their budget. This may be more sustainable in the long-term, as compared to having their children service both the mortgage on their parents’ flat, as well as their own home.

Nevertheless, in the circumstance where the sales proceeds are not sufficient even for a right-sized unit, then HDB would be prepared to exercise flexibility and extend a housing loan to the parents on a case-by-case basis.

As each family may have unique circumstances, I would suggest that they approach HDB to explore the possible options so that they can sustain their housing arrangement.”

HDB concessionary loan

For those seeking a second HDB concessionary loan, their loan quantum will be right-sized by utilising the CPF monies refunded and some of the cash proceeds obtained from the disposal of the previous HDB flat.

If they have yet to dispose of your existing HDB flat before buying a flat with a second HDB housing loan, you will first be granted a loan at commercial interest rate. The interest rate will be converted to concessionary rate when you have disposed of the current flat, and have used the CPF monies refunded and some of the cash proceeds from the disposal to repay the housing loan for the next flat purchase.

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The quantum for the second HDB concessionary loan will be reduced by the CPF monies refunded and up to 50% of the cash proceeds from the disposal of the existing or previously owned HDB flat. This facilitates financial prudence and prevents over-borrowing. The manner of disposal of a flat includes the sale, transfer or surrender of a flat, or by any other method under the Housing and Development Act or any other written law.

HDB reserves the right to determine the amount of proceeds to be used, either by taking into account the manner of holding of the existing/ previously owned HDB flat, or according to any court order that provides for the disposal/ division of the flat.

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Generally, flat buyers can keep the greater of $25,000 or 50% of the cash proceeds (including the cash deposit received), and HDB will take into account the remaining part of the cash proceeds when determining the quantum of the second HDB concessionary housing loan.

If you buy an HDB flat after disposing of the existing one, you and the essential occupier will have to use up to 50% of the cash proceeds from the disposal of the existing HDB flat. You may retain up to $20,000 in your CPF Ordinary Account and use the rest of the available CPF Ordinary Account balance to buy the next flat.

If you buy an HDB flat before disposing of the existing one, you will be charged commercial interest rate (pegged to the average non-promotional interest rate for HDB flats offered by the 3 local banks) for the housing loan to buy the next flat.

The interest rate will be converted to concessionary rate when you have disposed of the existing flat, and have used the CPF monies refunded and up to 50% of the cash proceeds from the disposal to repay the housing loan for the next flat purchase. From the CPF monies refunded, you may retain up to $20,000 in your CPF Ordinary Account.

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