Parliamentary Replies
Published Date: 12 August 2013

Reply to Parliamentary Question on Rising Household Debt

QUESTIONS NOS 1387 & 1391

NOTICE PAPERS 302 and 306 of 2013


Date: For Parliament Sitting on 12 August 2013

Name and Constituency of Member of Parliament

Q 1387. Mr Laurence Lien, NMP
Q 1391. Mr Yee Jenn Jong, NCMP


Q 1387. To ask the Prime Minister how concerned is the Government with the rising household debt and whether new measures are being planned to curb imprudent borrowing by households.

Q 1391. To ask the Prime Minister (a) what is the average number of housing loans taken up by over-leveraged borrowers with total debt payments at more than 60% of their income; (b) what is the average total housing loan owed by these over-leveraged borrowers; (c) what percentage of total household debt do the housing loans of over-leveraged borrowers make up; and (d) what estimated percentage of these over-leveraged borrowers can be pushed into forced property sales if the mortgage rates were to rise by 3 percentage points.

Answer by Mr Lawrence Wong, Acting Minister for Culture, Community and Youth on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of MAS:

1   Singapore’s household balance sheets are on the whole in good shape. Even excluding the value of property assets, cash and deposits owned by households exceed household debt in aggregate.

2   Another indication of the health of household balance sheets is the household debt-to-income ratio. This ratio fell in the second half of the last decade, and has since risen because of the strong growth of investments in the property market. However, the debt-to-income ratio, estimated at 2.1 times in 2012, still remains significantly lower than in the middle of the last decade when it peaked at 2.6 times.

3   Overall, therefore, households are currently not more leveraged than they have been in the past decade. The problem instead lies with a segment of borrowers. MAS knows from an examination of banks’ credit files that some households are likely to have borrowed too much, lulled by an extended period of low interest rates. They could be vulnerable when interest rates normalise.

4   There is no precise measure of over-leverage. A rough guide is to look at the debt service burden, or the proportion of one’s monthly income that is used for monthly re-payment of all loans, including the interest payments. By this measure, MAS estimates that about 5% to 10% of borrowers have a monthly debt servicing burden greater than 60% of their monthly income. It is reasonable to consider them as over-leveraged. Housing loans constitute the bulk of their borrowings.

5   However, while over-leveraging will cause borrowers difficulty, especially when interest rates rise, this does not mean they will default on their loans. Most of this group of borrowers with debt servicing burdens of more than 60% of their  income have above-average income levels. They are likely to have a larger absolute buffer of income and assets. 

6   Nevertheless, we cannot be complacent about household leverage. More borrowers, including those whose debt service burdens are currently below 60% of income, will face some difficulty when interest rates rise. Fundamentally too, we have to prevent a situation where credit supplied at low interest rates drives property prices, taking prices beyond levels that can be sustained by underlying income growth. This is why the government has taken a series of proactive measures to restrain borrowings for property purchases.

7   Apart from housing loans, MAS is also dealing with other components of household debt. As Members know, MAS has reintroduced LTV limits and tenure curbs for car loans. MAS has also proposed new rules on unsecured credit and credit cards to help individuals with credit problems avoid further debt. MAS will continue to encourage prudence in both lending and borrowing,  and help to keep household debt at a manageable level.