Parliamentary Replies
Published Date: 04 April 2022

Reply to Parliamentary Question on Rising Interest Rates and Mortgages

QUESTION NO 2689 and 2738



Date: For Parliament Sitting on 4 April 2022 


Mr Saktiandi Supaat, MP, Bishan-Toa Payoh GRC: To ask the Prime Minister in view of the rising global interest rate outlook (a) what are the risks to the household debt situation in Singapore; (b) what is the proportion of mortgages accounting for household debt over the past five years; and (c) what measures are in place to reduce the build-up of highly leveraged households and the associated vulnerabilities.

Mr Desmond Choo, MP, Tampines GRC: 
To ask the Prime Minister in view of the short-term interest rates raised by the US Federal Reserve (a) what is the impact on mortgage rates in Singapore; (b) whether there has been an increase in mortgage delinquency; and (c) what are the plans to educate younger and first-time home buyers on expected higher borrowing costs.

Answer by Mr Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:

1. Sir, the household debt situation in Singapore remains healthy, although there is a need for prudence in borrowing as interest rates rise in the coming years. 

a. The overall debt servicing ability of households has remained manageable, with the median Total Debt Servicing Ratio (TDSR) being 43% last year. This is well within the TDSR threshold of 55%, which was tightened last year as part of the Government and MAS’ property cooling measures.  
b. Second, the credit profile of mortgages is still healthy, with the proportion of delinquent mortgages at less than 1%. 
c. Third, household net wealth grew even through the pandemic, with household assets growing faster than household debt. Households’ liquid assets such as cash and bank deposits  continued to exceed their total liabilities in aggregate. 

2. Most households should still be able to service their mortgages as Singapore’s domestic interest rates pick up alongside global rates from their current lows. MAS’ stress tests suggest that the median household mortgage servicing ratio will remain manageable even under scenarios of significantly higher interest rates or lower incomes. However, there will be a small segment of households with higher leverage, who will be more constrained by interest rate rises. More broadly, all borrowers should exercise caution in their home purchases, to avoid having to cut back on other household expenditures if interest rates rise sharply.  

3. The financial resilience of households to service their mortgages reflects the effects of measures that MAS has put in place over the years. 

a. The interest rate used to calculate loan repayments under the TDSR is the higher of 3.5% or the prevailing market rate. This rate is about 2%-point higher than prevailing interest rates for new private property loans, which builds in a buffer for borrowers to service their mortgages across a normal interest rate cycle. 
b. Loan-to-value limits and restrictions on loan tenure have also encouraged greater financial prudence among mortgage borrowers of different profiles.  For example, loan tenure restriction  limits the duration and hence the overall financing that older borrowers can take up, because it is likely that income sources to support mortgage repayment would be more constrained after  retirement. 

4. MAS also requires that FIs provide homebuyers with the information they need to make sound and prudent decisions, before extending them residential mortgages.   

a. This includes projections on how a borrower’s monthly mortgage instalments would vary under different interest rate scenarios. 
b. MoneySense, our national financial education programme, also alerts consumers to important financial considerations when committing to a property purchase, including the recurrent,  long-term costs involved.

* * *