Tips to Pledging/Unpledging

This is an advanced technique to buy property when your income is not enough to allow you to borrow for purchasing your desired property. If you’re in that tight spot, this post will help you tremendously, and you might even realize you can afford a bigger unit than you thought.

What is Pledge/Unpledge

Let’s use an example. If you want to purchase a $2m property, your 75% LTV will be $1.5m. But if your income only allows you to borrow $800k from the bank, then you have a shortfall of $700k.

To cover for the shortfall, MAS has allow you to do the following:

1. Pledged fund for 4 years, or
2. Unpledge, that is to show funds, but with a 70% haircut

Extra funds are needed because they will translate to an “income stream” to help with the shortfall. Using the example, let’s say the $700k shortfall will require a pledge of $350k. As long as you show the bank you have $350k, and you then lock it with them for 4 years (placing a lien on the deposit), they will then loan you that extra $700k.

Unpledge is to show fund without locking. But that requires a much higher capital, translating to $350k / 0.3 = show fund of $1.167m. As you can see, the amount is much more, but you don’t have to lock the funds and lose out on the bank’s low FD/board rate interest, or lost opportunities.

If you can, it is better to unpledge. The key is

how can you find so much money?

Tips to finding fund

Buying property is the biggest purchase, and you might uncover these funds from these sources:

1. Family & friends - borrow!
2. Singapore Savings Bond (SSB)
3. Stock Equity

It’s not prudent to stretch and borrow, but for pledge/unpledge, it is merely to borrow for a few days, so as to allow bank to loan you more. It’s not the same as borrowing to pay the bank, so you should ask for a little help. Of course, you still need to make sure you are financially capable of paying the monthly mortgage.

For SSB, you have to hold it under your name, and the bank should recognize the fund.

If you hold stocks, you can take a margin loan to unlock a % of your portfolio value. In IB, the max amount is the Excess Liquidity. But you would want to withdraw with some buffer, because if your shares drop in value, you will be forced to liquidate! But that should be a small risk, because you should be using the fund for a few days only.

The interest for margin loan is pretty attractive on IB, just ~7% as of Nov 2024. To loan for a few days, that will be a fraction.

For banks like SCB, they have Wealth Lending, but beware that they take 7-10 days to set up a lien account..

Beware: Daily transfer lmiit

• SCB: 200k
• Trust: 100k
• Mari: 150k
• Coinbase: 200k

Repeated big transfers will also likely be flagged as suspicious activity. Just call the bank to lift the restrictions.