Personal Loan

In the past week, bank offices across the island were flooded with inquiry calls from paranoid clients who were ready to pull a Brexit on the UK property scene. United Overseas Bank (UOB), Singapore’s third largest lender, has even suspended their London property loans program and that surely triggered even more concerns among investors.

Why did UOB suspend their loans when other banks did not?

According to the news report, while UOB has stopped extending loans over the growing uncertainty of the UK economy, other banks such as their local counterpart DBS continue to dish out loans but caution investors on the increased risks.

“UOB have always been known to takes a proactive stance in their loan marketing and promotions. They are confident in their market shares in Singapore and abroad. In my opinion, the other banks might not have exited the English property loans market like them is because land area is scarce in Singapore and we are fast becoming saturated,” says Ryan Lee K.K., Marketing Director of ERA Realty Network. “They prefer to wait it out and open up their market shares to foreign investments, which is in line with what Singapore stands for: exciting, vibrant, cosmopolitan and globalized.”

“Different banks have different risk appetites for the same situation. The bank has to take into account the default risk in a volatile market like UK right now. The Brexit is only in its initial stage so we have to wait and see what's coming up in the next few months.”

Should you still borrow or err on the side of caution like UOB?

If you’re a first timer looking to capitalise on the fallen Pound (S$1 = £0.56 as of this writing), it’s perfectly understandable to be second-guessing yourself every second. You wonder how long this turmoil is going to torture your potential yields.

Perhaps you decide to turn your attention elsewhere, like Australia. Or, for something closer to home, Iskandar. No matter what, overseas property investment is a different beast altogether compared to buying a HDB here. There are so many more hoops to jump through and so many more sleepless nights to endure.

Before you sign your money off to an overseas developer that looks promising but is actually only as dependable as England’s footballing in Euro 2016 (too late for Breverse, mate!), we walk you through some of the basics of overseas property loans with the help of our property consultant, Mr Ryan Lee. From there, it’s on you to conclude whether it’s worth the shot.

How to qualify: Pre-requisites for a loan

This is pretty standard. For starters, you would need to show the bank six months’ proven paid wages if you’re an employee, or a Notice of Assessment (NOA) if you’re self-employed. The bank’s mortgage officer will look into your income and outstanding debts and determine if you’re eligible for the max loan quantum (up to 70% for UOB’s UK property loans program, payable over up to 35 years) of the purchase price. The bank will also take into account whether you’re the sole applicant. Before a contract offer is extended, you’ll need an In Principle Approval (IPA) from the bank.

Mr Lee adds that you will have to meet the requirements for the Total Debt Servicing Ratio (TDSR) and your credit history can play a part in affecting the outcome.

Which bank should you go for?

Just like how you would shop around for auto insurance, you should really do a bank hop to compare different loan packages. UOB and DBS are not the only players on the block (no pun intended). Be it loan tenure, max loan quantum, locations, down payment and interest rates, each bank has something different to offer.

“Some banks such as Citibank and Standard Chartered Bank offer loans for foreign property investments. Their packages change from time to time. They are flexible on whether the borrower is drawing a local or foreign income. Do note that most are only willing to loan for property investments in the city areas,” says Mr Lee. “It’ll be best to speak to your preferred bank’s mortgage officer for the best loan package tailored to your needs.”

Like what we’ve been specialising in this whole time, Mr Lee also suggests you should compare and contrast several options and pay attention to other details, such as whether you’ll be contractually locked in to the loan. This could greatly affect your future decision to refinance.

Exchange rate fluctuations

Besides interest rate payments and tenant scouring, the exchange rate is one of the biggest risks you have to monitor after you decide to take the plunge. The fluctuations are more volatile than a newborn’s temperament and the biggest drop in the Pound’s value in under 24 hours is testament that anything can happen.

Even if you can procure a UK property on the cheap, you could be looking at very slow days in terms of rental yields. Right now, £1 exchanges for about S$1.78. Prior to the Brexit, you would’ve been getting significantly favorable returns in Sing dollars for every Pound of capital gains. If the aftermath of the Brexit has yet to bottom out, then it’s going to be a real slippery slope because you might not even be close to seeing your desired gains in your expected timeframe. Don’t forget that converting the Pound back to Sing dollars is subject to charges too. 

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