Interest rate rise 'could hurt many households'

The logo of the Monetary Au thority of Singapore (MAS) is pictured at its building in Singapore in this Feb 21, 2013 photo.MAS had said that 5 to 10 per cent of borrowers here have probably overstretched themselves on their property purchases. -- FIL
The logo of the Monetary Au thority of Singapore (MAS) is pictured at its building in Singapore in this Feb 21, 2013 photo.MAS had said that 5 to 10 per cent of borrowers here have probably overstretched themselves on their property purchases. -- FILE PHOTO: REUTERS 

More than 9,000 households in Singapore may have trouble paying off their mortgages when interest rates rise, a new report warns.

Analysts from Religare Institutional Research made this calculation based on the statement by the Monetary Authority of Singapore on Tuesday.

MAS had said that 5 to 10 per cent of borrowers here have probably overstretched themselves on their property purchases.

That is, their total debt servicing payments, including those for their home, car and other loans, amount to more than 60 per cent of their income.

If mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10 to 15 per cent, the MAS said.

The central bank had also pointed out that the vast majority of mortgage loans here are on floating-rate packages, so many households will face higher monthly repayments when interest rates rise.

Religare noted in its report yesterday that there are 90,000 new homes coming onto the market from now to 2016.

This "means over 9,000 troubled units could be on the market", it said.

"That is more than half a year of new home supply and over 3 to 4 per cent of total private housing units."

Another worrying statistic, Religare said, is that only 70 per cent of existing property loans are for owner-occupied homes.

This shows that investor demand in private homes is running quite high, the analysts wrote.

"A little wobble in prices, combined with higher interest rates, might shake up a few property investors as well and add to the possible troubled units on the market."

MAS deputy managing director Teo Swee Lian had said at the release of the MAS annual report on Tuesday that there is a much lower chance of a default if a loan is for an owner-occupied home.