What are pledged and show funds, and how much more can I borrow?

If your income falls just short of the borrowing limit you need, savings alone will not close the gap, because banks do not count money in the bank as income. But MAS rules allow eligible financial assets to be converted into recognised monthly income, and that conversion can lift your maximum loan substantially. There are two routes: pledging and showing.

Eligible Assets

Both routes draw on the same pool of eligible financial assets: fixed and savings deposits, Singapore Government Securities, listed equities, unit trusts, gold, and certain insurance policies with a surrender value. Property and CPF balances do not count. Each bank maintains its own list of what qualifies, so an asset accepted by one lender may be rejected by another.

Pledging: Full Recognition

When you pledge, the assets are placed with the lending bank and locked for four years. In return, the bank recognises the amount as income, spread evenly over 48 months. A pledge of S$100,000 therefore adds S$2,083 to your recognised monthly income, being S$100,000 divided by 48.

Full recognition applies to cash and SGD deposits. Other pledged assets, such as equities, foreign currency and gold, take a haircut of at least 30%, so only around 70% of their value is recognised. Where the choice exists, pledging cash is the more efficient route.

Showing: 30% Recognition

Showing requires no lock-up. You simply demonstrate the assets to the bank at application and again at disbursement, and they remain yours to use. The trade-off is that only 30% of the amount is recognised. S$100,000 shown adds S$625 to monthly income, being S$100,000 divided by 48, then multiplied by 30%.

The same sum is therefore worth more than three times as much when pledged as when shown.

What This Buys You

Recognised income raises the ceiling set by TDSR, which caps total monthly debt at 55% of income. On a private property loan at the 4% stress-test rate over 25 years, S$100,000 pledged increases the maximum loan by roughly S$217,000. The same S$100,000 shown increases it by roughly S$65,000. For HDB flats and ECs, where the tighter 30% MSR cap usually binds, the corresponding figures are around S$118,000 and S$35,000.

A Worked Example

Consider a household earning S$8,000 per month with no other debt, buying a private condominium. Under TDSR, the maximum monthly instalment is S$4,400, supporting a loan of about S$833,000 at 4% over 25 years. If the purchase requires a S$900,000 loan, the shortfall in recognised income is roughly S$637 per month.

That gap can be closed by pledging about S$30,600, or by showing about S$102,000. A combination also works: half the gap pledged and half shown would require roughly S$15,300 pledged alongside S$51,000 shown. Note that the split applies to the income gap, not to the sum of money. The shown portion is always more than three times the pledged portion for the same effect.

When This Will Not Help

Pledging and showing raise the income-based limit only. If your borrowing is capped by the Loan-to-Value ratio rather than by income, no amount of pledging will move it, and you would need a larger downpayment instead.

It is also worth weighing the cost of a four year lock-up. Money pledged is money you cannot deploy elsewhere, and the interest earned on a pledged deposit is often below what the funds might otherwise return.

How Cashew Can Help

This is one of the areas where getting the right advice changes the answer outright, and it is work we do as a matter of course:

• We tell you whether income is actually your constraint. Pledging is useless if LTV is what is capping you. We establish which limit binds before you consider locking up any money.
• We calculate the exact amount. Our eligibility checker works out the pledge, show and combination figures for your specific income, debts and target loan, so you pledge what is needed and not a dollar more.
• We know which banks accept which assets. Panels differ on unit trusts, insurance policies, foreign currency and overseas holdings. A portfolio that falls short at one bank can be sufficient at another, and we know where to take it.
• We handle it inside the application. Pledging has to be set up correctly with the bank at the right point in the process. We arrange it with the lender so it counts when your file is assessed.

Why This Matters

Many buyers who are told they do not qualify are only a few hundred dollars of monthly income short. Knowing that a modest pledge can bridge that gap, and exactly how modest it needs to be, often changes the outcome of an application. Before you assume a property is out of reach, speak to Cashew and find out how far the gap really is.