Interest rates

Mortgage debts rise and interest rates could rise, Singapore MAS warns

Singaporean households have racked up a bigger pile of debt than before the Covid-19 strike, thanks to a vibrant real estate market.

Therefore, households should carefully assess their ability to meet their mortgage obligations and those who are heavily indebted should not take out more loans, the Monetary Authority of Singapore (MAS) advised in its annual Financial Stability Review (FSR). ) released on December 6.

The private real estate market in Singapore is turning red, with new sales of private homes in the first 10 months of this year surpassing full-year sales in 2018, 2019 and last year. , according to data from the Urban Redevelopment Authority.

Private house prices have risen 8.7% since the pandemic began in the first quarter of last year, outpacing Singapore’s 5.3% gross domestic product (GDP) growth before adjustment for inflation .

As a result, household debt as a percentage of GDP rose to 70 percent in the third quarter of this year, from 67.1 percent a year ago. In absolute terms, household debt has increased 6.8% over the past year.

“As a result, the risk of household debt has effectively increased from pre-Covid-19 levels,” MAS said.

The regulator said that while the economy is expected to grow until next year, the pandemic will continue to be a source of “considerable” uncertainty, and borrowers and lenders must continue to be vigilant and cautious.

According to the Ministry of Trade and Industry, the economy is expected to grow about seven percent this year and three to five percent next year. This is after a 5.4% contraction last year.

However, new global outbreaks of Covid-19 could lead to the reimposition of movement restrictions, which could disrupt economic activity again and ultimately reduce credit flows, MAS said in its annual report. FSR.

Additionally, consumer prices in some large economies such as the United States are already at their fastest pace in decades. If the US Federal Reserve raises benchmark interest rates in response, Singapore’s borrowing costs will rise as well.

“Households should be cautious when making large new commitments, taking due account of their ability to meet their long-term mortgage obligations, especially as interest rates are expected to rise gradually,” noted the FSR.

“Heavily indebted households should refrain from taking on more debt and try to provide financial buffers to the extent possible, to protect themselves from strains emanating from weakening macroeconomic conditions.”

The FSR is an annual assessment of the potential risks to Singapore’s financial system and its ability to withstand potential shocks. It measures risk using a Financial Vulnerability Index (FVI) for the banking, corporate and household sectors of the city-state.

As measured by the FVI, Singaporean households are more vulnerable to financial risks today than before the onset of Covid-19. However, over the past year their level of vulnerability has remained broadly unchanged due to Singaporeans taking on less short-term debt such as credit card debt and personal loans.

The stable household FVI during this year indicates that while families used home loans offered at lower rates, the Covid-19 restrictions prevented them from accumulating more fees on their credit cards because they weren’t spending on things like dinner and entertainment.