SINGAPORE - One in three home owners with outstanding mortgages from financial institutions were on loan packages moving in tandem with market interest rates as at the second quarter of 2022, said Minister of State for Trade and Industry Alvin Tan on Thursday.
Even so, Singapore’s household debt situation remains healthy, with a low proportion of non-performing mortgages among financial institution loans, at 0.3 per cent.
The number of foreclosures has also been trending down since 2021, and has remained low at fewer than 30 units so far this year, said Mr Tan, who is a Monetary Authority of Singapore (MAS) board member.
He added: “As rates continue or could continue to remain high beyond the next two to three years, all households will face higher borrowing costs than today and should therefore exercise prudence in their new borrowings.”
He was responding in Parliament to questions by Mr Desmond Choo (Tampines GRC) and Mr Alex Yam (Marsiling-Yew Tee GRC) about the impact of higher interest rates on companies and home owners with loans from private financial institutions.
Mr Tan said MAS does not expect widespread foreclosures in the near to medium term, adding: “The situation, in fact, reflects in part the measures we have put in place over the years to limit the amount one can borrow to buy property, including our recent further tightening of these limits.”
MAS’ stress tests suggest that most households should still be able to service their mortgages under scenarios of further interest rate hikes and significant income losses, said Mr Tan.
“A relatively small proportion of highly leveraged households may, however, be more constrained under a stressed scenario.”
Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) asked whether the regulator’s stress tests factor in the risk of mortgage interest rates potentially rising above 5 per cent.
Mr Tan replied that the tests suggest that most households, including borrowers on floating rate packages, should be able to service their debt even under “very conservative scenarios of simultaneous interest rate shocks, income loss and also a full pass-through of sharp global interest rate hikes”.
These tests assess debt repayment abilities based on income, and exclude household savings such as cash and Central Provident Fund Ordinary Account funds, which will provide financial buffers, he noted.
MAS’ stress tests of new borrowers have also assessed that most households should be able to continue servicing their debt even in a situation of a 400 basis-point increase in interest rates and a 10 per cent reduction in income, said Mr Tan.
“MAS is working very closely with MND (the Ministry of National Development) to monitor this situation carefully. And for those who are unable to service their loans, we will find ways in which to allow for debt repayment restructuring as well as to look for alternative housing,” he added.
Mr Choo asked for the authorities’ forecast for non-performing loans, especially those taken up by small and medium-sized enterprises, amid a rising interest rate environment and higher costs of funds.
“If and when we see a large number of companies facing insolvency, under what circumstances will companies or the Government come in and assist such companies, especially the promising ones, to tide over a difficult period?” he asked.
Mr Tan replied that most Singapore-listed firms continue to hold sufficient liquidity as at the first half of 2022, from assets such as cash that exceed these businesses’ short-term liabilities.
MAS’ stress tests on listed companies’ balance sheets show that most firms will be resilient to further increases in interest rates and earnings shocks.
“In the unlisted sector itself, most firms also either have healthy debt servicing ability or sufficient cash holdings to cover their short-term financing or operational needs,” he said, adding that businesses can also tap various schemes to access funding, transform their operations and increase productivity.