Tag Archives: Mortgage loan

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

Loan rules aimed at those who over-stretch to invest

Citing the unsustainable low interest rate environment, National Development Minister Khaw Boon Wan yesterday singled out Singaporeans “who are stretching themselves buying second, third properties for investments” as a source of worry for the Government.

And it is this group that the Monetary Authority of Singapore’s new rules on housing loans announced last Friday are targeted at, he said.

The Total Debt Servicing Ratio framework — under which any property loan should not push a borrower’s total debt obligations to above 60 per cent of his or her gross monthly income — is a “structural” initiative and “quite permanent”, said Mr Khaw, reiterating that it was not a cooling measure.

Speaking on the sidelines of the launch of Sembawang Group Representation Constituency’s (GRC) Memory Project, Mr Khaw said the new rules ensure Singaporeans “do not get overleveraged”. “That’s why (the MAS) looked at total burden, so it’s not just buying property but buying a car for some families or even credit loans and expenditures,” he said.

The rules are “not an issue” for people buying properties for home ownership, he noted.

“But we do have buyers who are stretching themselves buying second, third properties for investments and those are the people we worry about because when interest rates go up, they find themselves not being able to afford the increased mortgage,” said Mr Khaw.

“They may be forced to liquidate and, who knows, if that time is combined with a bit of a glut in property market, they may suffer financially.”

On whether the market could expect more government intervention, Mr Khaw said “the measures will stabilise when the market stabilises”.

He added that property prices have been moderating. “At some stage, it will stabilise to what is the right level.”

He pointed out that so far, property measures have been announced “incrementally” for the “general good of buyers and sellers”. Rolling out all the initiatives in a big-bang approach might crash the market, he said.

With the Government ramping up the supply of flats, Mr Khaw noted the “social objective” of building enough flats such that families can live “close together”.

Adding that more flats are being built in the north, Mr Khaw said it was also with this objective in mind that expansion plans for Tampines North are in the works.

“Tampines is already a very mature town with a big population. As the children grow up, get married, we can enable them to buy properties near old Tampines in the form of Tampines North,” he said.

In Sembawang GRC, its Memory Project — part of an islandwide movement to preserve the country’s history and heritage — would also serve to strengthen the bonds between the young and old.

About 80 polytechnic students and 40 youth volunteers from the constituency’s youth executive committee will source and collate memorable stories of kampung life from about 100 residents. The residents will share stories, pictures and artefacts, which will be collated in a book, Chronicles of Remembrance, which is expected to be released in May next year.

“Our kampung, our lives … all those should be captured,” said Mr Khaw. “Through a younger way of looking at things — interviewing, capturing, extracting the essence, getting the right visuals and then presenting it in various new media — we will achieve this in a much better way.”

Source – Today – 3 Jul 2013