Multiple mortgages

The Credit Bureau of Singapore (CBS) reveals that the number of people taking up 2 or more mortgages (home loans) has doubled when compared to 2 years ago. This is reported in the Straits Times today.

(The credit bureau is set up in 2002 by Association of Banks in Singapore (ABS) and DBIC Holdings Pte Ltd to help financial institutions share credit data and to check on the creditworthiness of their customers.)

Why do people buy 2 properties or more? If the answer is not already obvious to you, most of these people are trying to invest in property - they stay in one, rent out the other(s), and sell when the prices go up enough.

In fact, the media reported that some local celebrities were profiting $100k upwards after selling their recently acquired condominium apartments.

Note: they were selling, not buying. No one knows for sure if it's a good time to buy now. So, caveat emptor.

The ST article also mentions an unnamed banker who witnessed "a marked jump in applications from lower- to middle-income consumers who clearly want a second loan for speculative purposes."

The General Manager of CBS says:

"Obviously there is some speculation in the market. Consumers need to be careful about the risks of overstretching themselves. But there is limited risk of default because banks use strict criteria. They can also use the property as collateral."

I guess what he's saying in the latter part of the quote is that the consumer can't really escape from paying. If he defaults on the loan, his property (the collateral) will be sold off by the bank to recover the money.

And note that banks do not care if it's your second or third loan. As long as you're gainfully employed, earning a high enough pay, and have a good credit history, you will be granted the loan. They won't know if you're overstretching yourself.

A good guideline is: your total loan payments - whether for mortgages, car, renovation, etc - should not exceed 40% of your take home pay.

If you are investing in a 2nd property soon, be sure to go through the property investment checklist.

http://www.salary.sg/2007/multiple-mortgages/