New Reporter
07-09-23, 13:41
Fewer mortgage actions in courts as cooling measures, rising rates see more prudent borrowing
Sep 07, 2023
SINGAPORE households as a whole appear to be managing household debt well, even as mortgage rates have risen sharply in the last two years.
The number of mortgage actions filed in court hit a five-year low last year, according to statistics from the Singapore Courts. This comes as household net worth continued to rise despite a slowdown in residential asset value growth.
A mortgage action refers to an application for one or more reliefs and usually includes claims for: foreclosure; mortgage redemption; sale of the mortgaged property; delivery of possession by the mortgagee; payment of money secured by the mortgage; reconveyance of the property or its release from the security or; delivery of possession to the mortgagee.
Household balance sheet data from the Singapore Department of Statistics showed that net worth went up 8.9 per cent year on year to S$2.7 trillion in the second quarter of 2023. This was despite a slowdown in growth of residential asset values, which rose 9.1 per cent year on year to S$1.3 trillion, from an increase of about 11.7 per cent in Q1 2023 and 12.1 per cent in Q2 2022.
Liabilities – comprising mortgage loans and personal debt – fell 1 per cent to S$359 billion in Q2, after staying mostly flat in Q1 with a 0.05 per cent decline.
Analysts said that rising mortgage rates had turned households conservative. A homebuyer who committed to a new loan in 2018, for instance, would have seen their mortgage, originally pegged to an interest rate of 2 per cent to 2.5 per cent, revised sharply upwards to a rate of over 4 per cent by now.
Against that background of higher interest rates, mortgage actions filed in court fell. Based on statistics from the Singapore Courts, the number of mortgage actions filed in court more than halved in the past five years, from 414 of such cases in 2018 to just 132 cases last year.
Some 70 mortgage actions were filed between January and June 2023.
https://i.imgur.com/O3Uy4KN.png
Selena Ling, chief economist and head of global markets research and strategy at OCBC, attributed this downward trend to the various regulations and policies aimed at stabilising the economy as a whole, including property cooling measures as well as healthy household balance sheets and resilient labour markets.
On top of that, Singapore has seen positive wage growth, said Jacquelyn Tan, UOB head of group personal financial services.
“Most homeowners will likely have the means to defray their mortgage payments as well as withstand the recent rate increases,” she said.
Tan said the bank has been closely monitoring its home loans portfolio. So far, the majority of its borrowers are servicing their loans promptly, with no significant increase in delinquency or non-performing loans.
“Legal action and repossession of properties will always be a last resort, with the process usually taking a minimum of six to nine months, subject to a case-to-case basis,” she said.
Tan pointed to the various measures introduced to cool the real estate market – such as the reduction in the Total Debt Servicing Ratio (TDSR), lower loan-to-value (LTV) limits, and hikes in Additional Buyer’s Stamp Duty (ABSD) and Sellers’ Stamp Duty. The result has been homebuyers turning cautious about purchases or committing to mortgage loans with a longer tenure.
The lower incidence of mortgage actions is also likely due to the buoyant rental market, with rents ballooning in the past few years, said Joy Tan, executive director at Edmund Tie.
Latest quarterly data from the Urban Redevelopment Authority (URA) indicated that overall private residential rents are up 57.2 per cent since bottoming out in Q3 of 2020. Rental growth has slowed recently, to a 2.3 per cent rise in Q2 2023 from a 6.2 per cent gain in the previous quarter.
“Although the rental market has saturated and moderated now, it is still on the higher side,” said Edmund Tie’s Tan. “(This) means that homeowners will have no issue servicing their mortgage, since that can be covered by rent, and will not need to foreclose their property.”
Analysts believe that mortgage rates are likely to rise further if the US Federal Reserve hikes interest rates yet again. At the Fed’s last meeting in late August, chair Jerome Powell said that they are prepared to raise rates further “if appropriate” to keep borrowing costs high until inflation returns to the 2 per cent target.
“This is something individuals and homebuyers should be careful about,” said Sing Tien Foo, provost’s chair professor of the Department of Real Estate at the National University of Singapore.
Still, any headroom for growth is likely to be small, with interest rates probably rising by just decimal points, said Alan Cheong, Savills Singapore’s executive director of research and consultancy.
Even with economic headwinds, Leonard Tay, research head at Knight Frank, believes that demand will remain steady for real estate in Singapore.
For one, the TDSR, which determines how much homebuyers can borrow, has helped to keep the household balance sheet healthy, he said. “So while the uncertain economy, increased interest rates and cooling measures have tempered demand, there (is still) some demand for new products from households buying for their own stay.”
Mogul.sg chief research officer Nicholas Mak added that real estate is widely seen as an important and easily understandable investment asset. “Some (also) think it’s a safer investment than stocks and shares, which can be quite volatile.”
Bankers that The Business Times spoke to do not see a higher incidence of mortgage actions occurring next year.
“When customers face difficulties with their loan repayments, the bank will discuss repayment options with them,” said OCBC. These might include switching to an alternative pricing package with lower monthly instalments or extension of loan tenure, or a customised repayment plan.
UOB’s Tan added that elderly homeowners may also consider lease buybacks or adding younger borrowers to the mortgage, so that they can use their Central Provident Fund to help with the mortgage repayments.
“For HDB loans, the bank may also refer individuals who wish to right-size their homes to HDB for assistance,” she said.
At DBS, more than 50 per cent of their public housing home loan customers remain “protected” from interest rate movements and will continue to pay “lower than market rates” till the end of 2024, said Chelsea Ling, head of home financing solutions at the bank.
Proactive measures, such as the introduction of new home loan packages with lower interest rates, have also enabled DBS to record “very low single digits in foreclosures” in 2022, she noted. “Based on what we’re seeing for 2023 so far, we expect to see the same this year.”
The latest DBS financial health study, based on the bank’s database of 1.2 million retail customers, also found that loan balances have gradually risen in tandem with income brackets. The exception were those earning less than S$2,500 a month, who saw a slight 0.1 per cent decrease in loan balance.
“However, they need to to keep a close watch on their mortgages, given that they only have 1.5 months’ worth of savings, which is far lower than the bank’s recommended range of three to six months,” said Ling.
https://www.businesstimes.com.sg/property/fewer-mortgage-actions-courts-cooling-measures-rising-rates-see-more-prudent-borrowing
Sep 07, 2023
SINGAPORE households as a whole appear to be managing household debt well, even as mortgage rates have risen sharply in the last two years.
The number of mortgage actions filed in court hit a five-year low last year, according to statistics from the Singapore Courts. This comes as household net worth continued to rise despite a slowdown in residential asset value growth.
A mortgage action refers to an application for one or more reliefs and usually includes claims for: foreclosure; mortgage redemption; sale of the mortgaged property; delivery of possession by the mortgagee; payment of money secured by the mortgage; reconveyance of the property or its release from the security or; delivery of possession to the mortgagee.
Household balance sheet data from the Singapore Department of Statistics showed that net worth went up 8.9 per cent year on year to S$2.7 trillion in the second quarter of 2023. This was despite a slowdown in growth of residential asset values, which rose 9.1 per cent year on year to S$1.3 trillion, from an increase of about 11.7 per cent in Q1 2023 and 12.1 per cent in Q2 2022.
Liabilities – comprising mortgage loans and personal debt – fell 1 per cent to S$359 billion in Q2, after staying mostly flat in Q1 with a 0.05 per cent decline.
Analysts said that rising mortgage rates had turned households conservative. A homebuyer who committed to a new loan in 2018, for instance, would have seen their mortgage, originally pegged to an interest rate of 2 per cent to 2.5 per cent, revised sharply upwards to a rate of over 4 per cent by now.
Against that background of higher interest rates, mortgage actions filed in court fell. Based on statistics from the Singapore Courts, the number of mortgage actions filed in court more than halved in the past five years, from 414 of such cases in 2018 to just 132 cases last year.
Some 70 mortgage actions were filed between January and June 2023.
https://i.imgur.com/O3Uy4KN.png
Selena Ling, chief economist and head of global markets research and strategy at OCBC, attributed this downward trend to the various regulations and policies aimed at stabilising the economy as a whole, including property cooling measures as well as healthy household balance sheets and resilient labour markets.
On top of that, Singapore has seen positive wage growth, said Jacquelyn Tan, UOB head of group personal financial services.
“Most homeowners will likely have the means to defray their mortgage payments as well as withstand the recent rate increases,” she said.
Tan said the bank has been closely monitoring its home loans portfolio. So far, the majority of its borrowers are servicing their loans promptly, with no significant increase in delinquency or non-performing loans.
“Legal action and repossession of properties will always be a last resort, with the process usually taking a minimum of six to nine months, subject to a case-to-case basis,” she said.
Tan pointed to the various measures introduced to cool the real estate market – such as the reduction in the Total Debt Servicing Ratio (TDSR), lower loan-to-value (LTV) limits, and hikes in Additional Buyer’s Stamp Duty (ABSD) and Sellers’ Stamp Duty. The result has been homebuyers turning cautious about purchases or committing to mortgage loans with a longer tenure.
The lower incidence of mortgage actions is also likely due to the buoyant rental market, with rents ballooning in the past few years, said Joy Tan, executive director at Edmund Tie.
Latest quarterly data from the Urban Redevelopment Authority (URA) indicated that overall private residential rents are up 57.2 per cent since bottoming out in Q3 of 2020. Rental growth has slowed recently, to a 2.3 per cent rise in Q2 2023 from a 6.2 per cent gain in the previous quarter.
“Although the rental market has saturated and moderated now, it is still on the higher side,” said Edmund Tie’s Tan. “(This) means that homeowners will have no issue servicing their mortgage, since that can be covered by rent, and will not need to foreclose their property.”
Analysts believe that mortgage rates are likely to rise further if the US Federal Reserve hikes interest rates yet again. At the Fed’s last meeting in late August, chair Jerome Powell said that they are prepared to raise rates further “if appropriate” to keep borrowing costs high until inflation returns to the 2 per cent target.
“This is something individuals and homebuyers should be careful about,” said Sing Tien Foo, provost’s chair professor of the Department of Real Estate at the National University of Singapore.
Still, any headroom for growth is likely to be small, with interest rates probably rising by just decimal points, said Alan Cheong, Savills Singapore’s executive director of research and consultancy.
Even with economic headwinds, Leonard Tay, research head at Knight Frank, believes that demand will remain steady for real estate in Singapore.
For one, the TDSR, which determines how much homebuyers can borrow, has helped to keep the household balance sheet healthy, he said. “So while the uncertain economy, increased interest rates and cooling measures have tempered demand, there (is still) some demand for new products from households buying for their own stay.”
Mogul.sg chief research officer Nicholas Mak added that real estate is widely seen as an important and easily understandable investment asset. “Some (also) think it’s a safer investment than stocks and shares, which can be quite volatile.”
Bankers that The Business Times spoke to do not see a higher incidence of mortgage actions occurring next year.
“When customers face difficulties with their loan repayments, the bank will discuss repayment options with them,” said OCBC. These might include switching to an alternative pricing package with lower monthly instalments or extension of loan tenure, or a customised repayment plan.
UOB’s Tan added that elderly homeowners may also consider lease buybacks or adding younger borrowers to the mortgage, so that they can use their Central Provident Fund to help with the mortgage repayments.
“For HDB loans, the bank may also refer individuals who wish to right-size their homes to HDB for assistance,” she said.
At DBS, more than 50 per cent of their public housing home loan customers remain “protected” from interest rate movements and will continue to pay “lower than market rates” till the end of 2024, said Chelsea Ling, head of home financing solutions at the bank.
Proactive measures, such as the introduction of new home loan packages with lower interest rates, have also enabled DBS to record “very low single digits in foreclosures” in 2022, she noted. “Based on what we’re seeing for 2023 so far, we expect to see the same this year.”
The latest DBS financial health study, based on the bank’s database of 1.2 million retail customers, also found that loan balances have gradually risen in tandem with income brackets. The exception were those earning less than S$2,500 a month, who saw a slight 0.1 per cent decrease in loan balance.
“However, they need to to keep a close watch on their mortgages, given that they only have 1.5 months’ worth of savings, which is far lower than the bank’s recommended range of three to six months,” said Ling.
https://www.businesstimes.com.sg/property/fewer-mortgage-actions-courts-cooling-measures-rising-rates-see-more-prudent-borrowing