MORTGAGE LOAN TENURE PREFERENCES AND IMPACT OF PROPERTY COOLING MEASURES

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Group Number: 5404

NANYANG BUSINESS SCHOOL
MORTGAGE LOAN TENURE PREFERENCES AND
IMPACT OF PROPERTY COOLING MEASURES

U1010086C
U1011061C
U1010843C

Supervised By: Dr. Kong Yoon Kee

Applied Research Project submitted to the Nanyang Business School, Nanyang Technological University in partial fulfillment for the double degree of Bachelor of Accountancy and Bachelor of Business.

Academic Year 2012/13

Word Count: 6,914

ABSTRACT
UOB recently promoted a 50-year loan to increase affordability of monthly mortgage payments. In a move to promote financial prudence, MAS introduced measures to limit loan tenure to 35 years explicitly. Our study focuses on the mortgage loan tenure preferences and the impact of the new property cooling measures in Singapore.

Research shows little prior studies on mortgage loan tenure preferences in Singapore. Based on past findings in other countries, this paper examines 6 common factors influencing loan tenure preferences, namely: housing prices, interest rates, presentation of financial information, purpose of property, income and education. This will be examined in the paper through 7 hypotheses.

Our survey results from a target sample size of 500 show that all the above factors influence the choice of loan tenure. From our analysis, it is observed that a longer loan tenure is preferred at higher housing prices, lower interest rates and for those with lower income. However, a trend is not found for education. Results also show that the new regulation has minimal impact, as most Singaporeans are already quite prudent in their selection, with 25-year loans being more preferred than a longer one.

We will also discuss the implications of our findings and provide recommendations to relevant stakeholders. From our analysis, we recommend lenders to promote longer loan term to property investors, as long-term loans are preferred for investment property. We also recommend borrowers to diversify their assets as results show that they still prefer to invest in properties even with an existing one. Lastly, we recommend the government to introduce a fact sheet that includes total mortgage payment and interest amounts, as findings reveal that information on loans provided makes a difference in the preference for loan tenures.

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ACKNOWLEDGEMENTS
We would like to express our sincere gratitude to our Applied Research Project supervisor, Mr. Kong Yoon Kee for the continuous support and patience and guidance that he had provided us throughout the project.

In addition, we would like to thank all our survey respondents who have spent valuable time and effort in helping us to complete our questionnaire. Last but not least, we would like to thank all others, including our families and friends, who have helped us in one way or another to make this project possible.

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TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION ............................................................................... 1 1.1 Background ......................................................................................................... 1 1.2 Rationale ............................................................................................................. 3 1.3 Scope of Report ................................................................................................... 4 1.4 Overview............................................................................................................. 5 CHAPTER 2: LITERATURE REVIEW .................................................................... 6 2.1 CPF awareness and usage on home loans ............................................................ 6 2.2 Housing prices..................................................................................................... 6 2.3 Interest Rates....................................................................................................... 8 2.4 Consumer’s psychological process...
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