More consumers looking for fixed rate home loans with interest rates set to rise

Posted on 26 Jul 2013 | Comments Off on More consumers looking for fixed rate home loans with interest rates set to rise

More consumers are looking to lock in fixed rates for their home loans over concerns about the prospect of rising interest rates. On Tuesday, Singapore’s central bank warned that borrowers who over-extended themselves could be at risk, should mortgage rates increase.

Given low interest rates over the past few years, many home buyers have opted for floating rate loan packages. However, market players said there has been a jump in queries from new home buyers and existing mortgage loan holders seeking fixed rates.

Timothy Kua, director of SmartLoans.sg, said: “Now, banks on the other hand, are also either increasing (the rates) on their fixed rate packages, (raising) the rates by anywhere from 0.1 to 0.2 per cent over the past two weeks, or even pulling out their fixed rate packages altogether in anticipation of the surge in demand and rising interest rates.”

A sudden spike in interest rates could mean that some borrowers may not be able to meet their loan repayments. That is why the Monetary Authority of Singapore has moved in to restrict excessive lending by banks.

However, prior to stricter loan approval guideline put in place last month, loan growth has already been slowing to due to curbs on the property market.

Alfred Chan, director of financial institutions at Fitch Ratings, said: “The amount of new loans being booked — such statistics are not available but based on my understanding, because of the cooling measures, new housing loans have slowed quite dramatically.

“So there is definitely going to be an impact at some point in time.”

Lesser money made off home loans could translate to lower revenue for banks, but they can look to other business streams, as well as higher interest rates to boost their margins.

For now, the concern is a build-up of leverage among households.

To avoid a “hard landing” and increase in bad debts, Phillip Futures said the Singapore central bank is likely to ensure ample supply of the Singapore dollar in order to keep interest rates low for the time being.

That means it is unlikely for the Singapore dollar to strengthen in the near term.

Source – CNA – 26 Jul 2013

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Singapore’s mounting household debt ‘worrying’

Posted on 24 Jul 2013 | Comments Off on Singapore’s mounting household debt ‘worrying’

Singapore’s high property prices and increasing household debt pose a significant risk to its financial system, according to the Monetary Authority of Singapore (MAS).

“The combination of low interest rates, growing leverage and surging property prices poses significant risks to financial stability,” said Ravi Menon, Managing Director of the central bank.

Despite the city-state’s sound banking system, the mounting household debt is “worrying”, noted Menon, adding that a sizeable number of households have overborrowed in their mortgages due to low interest rates and long repayment terms.

Menon estimated that five to 10 percent of all Singaporean mortgagors may have borrowed more than they can afford, meaning their total debt servicing ratio (TDSR) is more than 60 percent of their monthly income.

Those who overborrowed, especially low-income households and those with small savings, may struggle to repay their mortgage if interest rates rise.

“When interest rates rise, long before any bank gets into trouble, some households will,” he explained. “Banks must therefore practise responsible lending, and consider the ability of borrowers to service their debt in a sustainable manner.”

Mortgage lending by banks climbed by 18 percent in the past three years. At present, housing loans as a percentage of Singapore’s GDP is at 46 percent, up from 35 percent three years ago, added Menon.

Last week, credit rating agency Moody’s downgraded its forecast on Singapore’s major banks from “stable” to “negative”. It said rising property prices and rapid loan growth have increased the chance that lenders’ credit profiles may deteriorate if there are adverse conditions in the future.

Source – PropertyGuru – 24 Jul 2013

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