reporter2
04-12-15, 16:46
http://www.businesstimes.com.sg/government-economy/households-earning-less-than-s7k-most-burdened-by-mortgage-rate-hikes-mas
Households earning less than S$7k most burdened by mortgage rate hikes: MAS
But its stress tests find most households can still service their housing loans in new rate-income scenario
By Soon Weilun
[email protected]
@SoonWeilunBT
Nov 28, 2015
WHILE households have exercised financial prudence as growth in wealth slowed, those with private housing loans and incomes of less than S$7,000 are the most exposed to higher financial burden when mortgage rates increase.
The Monetary Authority of Singapore (MAS) also found that households that manage several loans for their investment properties might face difficulties, too.
In its latest Financial Stability Review, an annual snapshot of Singapore's financial health that was released on Friday, MAS detailed the exposure to financial risk that households faced.
The possibility of the United States Federal Reserve normalising interest rates clearly weighed on the central bank's mind as it ascertained the financial resilience of households here.
"Households should review their debt obligations and financial health as the interest rate cycle turns," it wrote.
Financial health of households seemed sound.
MAS found that net wealth, or the value of assets minus debt, of households has continued to grow, albeit at a slower pace.
The year-on-year growth in household net wealth moderated to an average of 2.6 per cent over the past year to reach S$1.5 trillion in Q3 2015. This is almost four times the size of Singapore's gross domestic product.
At the same time, indebtedness of households has also moderated, thereby lessening their exposure to credit risk.
Growth in household debt slowed to 2.9 per cent year-on-year in Q3 this year, down from an average of 8.7% over the last five years.
Among them, growth in housing loans declined to 4.8 per cent year-on-year in Q3 2015, from 6.5 per cent the same period last year.
In addition, the credit risk profile of households have also improved, with most housing loans having a loan-to-value (LTVs) ratio of 80 per cent or lower.
MAS attributed this to the Total Debt Servicing Ratio (TDSR) framework, with almost all new housing loans granted since its introduction falling within the 60 per cent threshold.
Growth in other forms of household debt has also slowed.
In particular, vehicle loans declined by an average of 10 per cent year-on-year over the last 3 years.
The growth in credit card loans peaked at 16 per cent year-on-year in Q3 2012, but has since turned negative in the second quarter of this year.
However, MAS is worried about the prospect of rising interest rates.
Chief among its worries was how housing loans would strain the finances of households, as they account for three-quarters of total household liabilities, said MAS.
There are strong expectations from observers that the most common reference rate for housing loans will continue to rise.
The reference rate, known as the three-month Singapore dollar SIBOR has risen by about 60 basis points, or about 0.6 per cent, since end-2014 to reach about 1.1 per cent over a week ago.
The good news is that stress tests conducted by MAS found that most households can still service their housing loans, even when household incomes decline by 10 per cent on top of a 3-percentage point increase in mortgage rates.
However, certain segments of households that are highly-leveraged could be at risk when mortgage rates rise significantly, said MAS.
MAS calculations showed that those with below-median household income at lower than S$7,000 would be most vulnerable.
If these households started off with mortgages taking up more than 40 per cent of their income, the same scenario will in fact increase the burden to 60 per cent.
Households that rely on rental income to service their housing loans are equally vulnerable, with weakening rental markets and rising mortgage rates imposing additional financial stress on these households.
The central bank reminded banks to be prudent when underwriting housing loans for households. They should work closely with their clients to address risks of rising mortgage rates.
As for households themselves, MAS recommended paying down mortgages. This could help "avoid a build-up of interest payments that could lead to spiralling debt and unsustainable debt servicing burdens," wrote MAS.
Households earning less than S$7k most burdened by mortgage rate hikes: MAS
But its stress tests find most households can still service their housing loans in new rate-income scenario
By Soon Weilun
[email protected]
@SoonWeilunBT
Nov 28, 2015
WHILE households have exercised financial prudence as growth in wealth slowed, those with private housing loans and incomes of less than S$7,000 are the most exposed to higher financial burden when mortgage rates increase.
The Monetary Authority of Singapore (MAS) also found that households that manage several loans for their investment properties might face difficulties, too.
In its latest Financial Stability Review, an annual snapshot of Singapore's financial health that was released on Friday, MAS detailed the exposure to financial risk that households faced.
The possibility of the United States Federal Reserve normalising interest rates clearly weighed on the central bank's mind as it ascertained the financial resilience of households here.
"Households should review their debt obligations and financial health as the interest rate cycle turns," it wrote.
Financial health of households seemed sound.
MAS found that net wealth, or the value of assets minus debt, of households has continued to grow, albeit at a slower pace.
The year-on-year growth in household net wealth moderated to an average of 2.6 per cent over the past year to reach S$1.5 trillion in Q3 2015. This is almost four times the size of Singapore's gross domestic product.
At the same time, indebtedness of households has also moderated, thereby lessening their exposure to credit risk.
Growth in household debt slowed to 2.9 per cent year-on-year in Q3 this year, down from an average of 8.7% over the last five years.
Among them, growth in housing loans declined to 4.8 per cent year-on-year in Q3 2015, from 6.5 per cent the same period last year.
In addition, the credit risk profile of households have also improved, with most housing loans having a loan-to-value (LTVs) ratio of 80 per cent or lower.
MAS attributed this to the Total Debt Servicing Ratio (TDSR) framework, with almost all new housing loans granted since its introduction falling within the 60 per cent threshold.
Growth in other forms of household debt has also slowed.
In particular, vehicle loans declined by an average of 10 per cent year-on-year over the last 3 years.
The growth in credit card loans peaked at 16 per cent year-on-year in Q3 2012, but has since turned negative in the second quarter of this year.
However, MAS is worried about the prospect of rising interest rates.
Chief among its worries was how housing loans would strain the finances of households, as they account for three-quarters of total household liabilities, said MAS.
There are strong expectations from observers that the most common reference rate for housing loans will continue to rise.
The reference rate, known as the three-month Singapore dollar SIBOR has risen by about 60 basis points, or about 0.6 per cent, since end-2014 to reach about 1.1 per cent over a week ago.
The good news is that stress tests conducted by MAS found that most households can still service their housing loans, even when household incomes decline by 10 per cent on top of a 3-percentage point increase in mortgage rates.
However, certain segments of households that are highly-leveraged could be at risk when mortgage rates rise significantly, said MAS.
MAS calculations showed that those with below-median household income at lower than S$7,000 would be most vulnerable.
If these households started off with mortgages taking up more than 40 per cent of their income, the same scenario will in fact increase the burden to 60 per cent.
Households that rely on rental income to service their housing loans are equally vulnerable, with weakening rental markets and rising mortgage rates imposing additional financial stress on these households.
The central bank reminded banks to be prudent when underwriting housing loans for households. They should work closely with their clients to address risks of rising mortgage rates.
As for households themselves, MAS recommended paying down mortgages. This could help "avoid a build-up of interest payments that could lead to spiralling debt and unsustainable debt servicing burdens," wrote MAS.