reporter2
05-04-22, 10:23
Most households able to service mortgages even as interest rates pick up: Alvin Tan
Apr 05, 2022
MOST households in Singapore should still be able to service their mortgages as Singapore's domestic interest rates pick up along with global rates, said Minister of State for Trade and Industry Alvin Tan on Monday (Apr 4).
Studies conducted by the Monetary Authority of Singapore (MAS) also suggest that the median household mortgage servicing ratio will remain manageable even under scenarios of significantly higher interest rates or low incomes, said Tan, who is also a member of the MAS board, in Parliament.
"However, there will still be a small segment of households with higher leverage, who will be more constrained by interest rates," he said. "All borrowers should exercise caution in their home purchases to avoid having to cut back on other household expenditures if interest rates rise sharply".
Tan was responding to questions from Members of Parliament (MPs) on the impact of the rising global interest rate outlook on mortgage rates and the household debt situation in Singapore.
In his reply, Tan said the household debt situation in Singapore "remains healthy". The overall debt servicing ability of households remains manageable with the median total debt servicing ratio (TDSR) at 43 per cent last year, well within the threshold of 55 per cent.
The credit profile of mortgages is also healthy, said Tan, with the proportion of delinquent mortgages at less than 1 per cent.
And even through the pandemic, household net wealth grew, with household assets growing faster than household debt. Household liquid assets - such as cash and bank deposits - continue to exceed the total liabilities aggregate.
Tan noted that the MAS's measures over the years have put households in good financial standing to service their mortgages.
For instance, the interest rate used to calculate loan repayments under the TDSR is the higher of 3.5 per cent or the prevailing market rate.
"This rate is about 2 percentage points higher than prevailing interest rates for new property private property loans, which builds in a buffer for borrowers to service their mortgages across a normal interest rate cycle," he said.
The loan-to-value limits and restrictions on loan tenure have also encouraged greater financial prudence among mortgage borrowers of various profiles, said Tan.
On Singapore's interest rate outlook, he said households and businesses should expect a pickup in domestic rates and an attendant increase in financing costs.
Most Singapore-listed firms continued to hold sufficient liquidity in the fourth quarter of last year, but there are still a proportion of highly-leveraged companies whose cash flows have been eroded by higher borrowing costs, noted Tan.
Still, he said, the broader economic recovery "should provide some reprieve as Singapore opens up and emerges from the pandemic".
Responding to a question from Saktiandi Supaat (Bishan-Toa Payoh GRC) on the proportion of the population who are exposed to personal unsecured lending, Tan said credit quality has remained "generally favourable and stable over the past year", even improving from pre-pandemic levels.
As a share of gross domestic product (GDP), outstanding credit card balances have come down from 2.5 per cent in Q4 2019 to 2.1 per cent in Q4 2021.
Roll-over balances as a share of GDP has also inched down from 1.3 per cent in Q4 2019 to 1 per cent in 2021, and the charge-off rate fell from 6.3 per cent in Q4 2019 to 4.4 per cent in Q4 2021.
Apr 05, 2022
MOST households in Singapore should still be able to service their mortgages as Singapore's domestic interest rates pick up along with global rates, said Minister of State for Trade and Industry Alvin Tan on Monday (Apr 4).
Studies conducted by the Monetary Authority of Singapore (MAS) also suggest that the median household mortgage servicing ratio will remain manageable even under scenarios of significantly higher interest rates or low incomes, said Tan, who is also a member of the MAS board, in Parliament.
"However, there will still be a small segment of households with higher leverage, who will be more constrained by interest rates," he said. "All borrowers should exercise caution in their home purchases to avoid having to cut back on other household expenditures if interest rates rise sharply".
Tan was responding to questions from Members of Parliament (MPs) on the impact of the rising global interest rate outlook on mortgage rates and the household debt situation in Singapore.
In his reply, Tan said the household debt situation in Singapore "remains healthy". The overall debt servicing ability of households remains manageable with the median total debt servicing ratio (TDSR) at 43 per cent last year, well within the threshold of 55 per cent.
The credit profile of mortgages is also healthy, said Tan, with the proportion of delinquent mortgages at less than 1 per cent.
And even through the pandemic, household net wealth grew, with household assets growing faster than household debt. Household liquid assets - such as cash and bank deposits - continue to exceed the total liabilities aggregate.
Tan noted that the MAS's measures over the years have put households in good financial standing to service their mortgages.
For instance, the interest rate used to calculate loan repayments under the TDSR is the higher of 3.5 per cent or the prevailing market rate.
"This rate is about 2 percentage points higher than prevailing interest rates for new property private property loans, which builds in a buffer for borrowers to service their mortgages across a normal interest rate cycle," he said.
The loan-to-value limits and restrictions on loan tenure have also encouraged greater financial prudence among mortgage borrowers of various profiles, said Tan.
On Singapore's interest rate outlook, he said households and businesses should expect a pickup in domestic rates and an attendant increase in financing costs.
Most Singapore-listed firms continued to hold sufficient liquidity in the fourth quarter of last year, but there are still a proportion of highly-leveraged companies whose cash flows have been eroded by higher borrowing costs, noted Tan.
Still, he said, the broader economic recovery "should provide some reprieve as Singapore opens up and emerges from the pandemic".
Responding to a question from Saktiandi Supaat (Bishan-Toa Payoh GRC) on the proportion of the population who are exposed to personal unsecured lending, Tan said credit quality has remained "generally favourable and stable over the past year", even improving from pre-pandemic levels.
As a share of gross domestic product (GDP), outstanding credit card balances have come down from 2.5 per cent in Q4 2019 to 2.1 per cent in Q4 2021.
Roll-over balances as a share of GDP has also inched down from 1.3 per cent in Q4 2019 to 1 per cent in 2021, and the charge-off rate fell from 6.3 per cent in Q4 2019 to 4.4 per cent in Q4 2021.