Parliamentary Replies
Published Date: 14 August 2012

Reply to parliamentary questions on 50-year mortgage loans

Questions Nos 562 and 567

Notice Papers Nos 262 & 263 of 2012

For Written Answer

Date: For Parliament Sitting on 13 August 2012

Name and Constituency of Member of Parliament

Mr Lim Biow Chuan, MP for Mountbatten

Question No. 562

To ask the Prime Minister in view of the extension of the term of home mortgage loans from banks for up to 50 years, whether there are implications on the property market when making home loans too affordable and what are these implications, if any.

Name and Constituency of Member of Parliament

Ms Penny Low, MP for Pasir-Ris Punggol GRC

Question No. 567

To ask the Prime Minister in view of the ageing demographics and the extension of the term of home mortgage loans from banks for up to 50 years, (a) what are the implications on retirement planning in Singapore; (b) what steps are in place to ensure prudent financial planning; and (c) whether there are new concrete steps in place to prevent an overselling of property.

Response by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of MAS

1   The 50-year mortgage product is currently offered by one bank and the take-up rate has been low. But if it becomes more widespread, it could have adverse implications for borrowers, the property market, and banks.

2   For the borrower, a very long mortgage tenure has two implications.  First, he will end up paying more interest.  Further, the payment period could stretch past the normal retirement age, when the borrower may no longer have a steady income stream.  In other words, the longer tenure loan will cost more and impose a longer-term burden. But mortgage tenure is just one of the factors that both borrowers and banks must assess. MAS will carefully monitor mortgage tenure in the context of how banks structure their mortgage products, as well as the banks’ underwriting standards.  Sound mortgage underwriting standards help to lower the risks to banks, but also the risk of borrowers taking on loans which may cause them financial difficulties later.

3   Banks must assess potential borrowers’ ability to repay their loans, taking into account their income and other loan obligations. Loan tenures must take into account the borrower’s current and likely future income and repayment capacity, especially where the term of the loan extends past the normal retirement age.   

4   Responsibility also lies with the borrower, who must exercise prudence when taking on housing loans.  A mortgage loan is a large and long term commitment.  In deciding how much to pay each month for the mortgage, home buyers need to take into account not only their other expenses, but also their post-retirement financial needs.  The national financial education programme, MoneySENSE, aims to educate consumers on what they should consider when buying a home or taking a loan, and how they should plan for retirement.

5   A longer mortgage tenure also has implications for the property market.  It could give buyers the impression of improved affordability of housing, given the smaller monthly repayments, although reality is that of a larger long term debt service burden. Buyers may therefore believe that they are able to afford a larger or more expensive property. If this becomes widespread, it will increase the demand for properties.

6   The measures taken by the Government and MAS in recent years have helped to reduce the risk of a sharp escalation in property prices.  The lowering of caps on loan-to-value (LTV) ratios for housing loans since 2010 has helped to moderate the demand for properties. The average LTV ratio for outstanding housing loans stands at a healthy 44%. The proportion of housing loans where borrowers have difficulty repaying or have defaulted is low, at 0.3%.

7   The Government will continue to closely monitor the property market and take the steps necessary to promote a stable and sustainable market.