Singapore Banks Mortgage Hikes—Is It Affordable?
A mortgage is a commitment between a borrower and a lender that gives the lender the legal right to your property. This is carried out as a safety precaution to ensure that people repay the borrowed amount and interest on schedule. In Singapore, a mortgage loan is never settled in full with a single payment. The loan must be repaid over the course of several monthly mortgage payments, which also cover maintenance and insurance.
Affordability has become a major issue in Singapore, as housing prices continue to rise while incomes remain stagnant. This has led to concerns that many people will be unable to afford their mortgage payments if interest rates rise. In response to these concerns, the Singapore government has implemented a number of measures to cool the housing market. These include introducing a new property tax, capping the maximum loan-to-value ratio for mortgages, and increasing the stamp duty for home purchases. While these measures have helped to slow down the housing market, prices are still high and many people are struggling to afford their mortgage payments. In addition, interest rates are expected to rise in the next few years, which will further increase the burden on borrowers. As a result, it is important to carefully consider whether you can afford a mortgage before taking one out.
The Changes
Following the U.S., Singapore’s three biggest banks, namely DBS, OCBC, and UOB, all increased housing loan rates in June. In response to the move by the Federal Reserve to raise interest rates by 75 basis points in the same month in order to curb inflation, Since 1994, this rise has been the most aggressive.
On June 28th, the Development Bank of Singapore Limited (DBS), one of Singapore’s largest lenders, increased the rates on its two- and three-year fixed home loan packages by 0.3% points to 2.75% per year. In addition, the bank discontinued a five-year fixed rate package at 2.05 percent that was only available to Housing Board homeowners. It was the first bank to make its move on mortgages.
Overseas Chinese Banking Corporation (OCBC) increased its two-year fixed package by 0.33 percent to match DBS. The current rate is 2.98%.
On June 29, United Overseas Bank Limited (UOB) hit a high of 3.08% per annum. The previous rate of its three-year plan for home loans was 2.8%. Its two-year fixed rate packages rate increased from 2.65% to 2.98% annually.
Is the hike in mortgage affordability?
According to property experts, the hike in rates is not surprising. A housing loan with a 2% rate is considered very cheap, according to Christine Li, the head of research for the Asia Pacific. According to her, existing property owners would have benefited from two years of really cheap mortgage rates, but right now, due to the increase in rates, it’s merely a reversion to the normal from two or three years ago. However, residents owning private properties with their mortgages secured by bank loans might start to feel the pressure.
Response
The news left a few citizens relieved for a short amount of time, as they felt that they would not be affected immediately. But soon, these homeowners realized that their mortgages would increase tremendously in the upcoming years as their fixed-rate mortgages terminated. Because of this, these people mentioned that they would have to cut their expenses on unnecessary things such as restaurants and shopping. Because of this, their personal budgets and safeguarding have been disturbed very thoroughly.
Midway through December, Singapore enacted new regulations designed to bring the nation’s sweltering residential and private real estate markets under control. It tightened credit restrictions and increased taxes on second and subsequent real estate transactions. According to a Ministry of National Development report from the same month, the government also declared it would boost the availability of both public and private housing to meet the high demand.
However, if mortgage rates keep on increasing, they might soon reach a point of 4%. Such rates might limit a borrower’s discretionary income and make it harder for them to pay for necessities.
However, various companies, banks, and institutes, such as Credit Bureau Asia, a Singapore-based company, publish annual reports on credit and risk in the loan market. It is advisable to refer to the Credit Bureau Asia annual reports before being a part of any loan system, especially mortgages, as their high rates have left many citizens unhappy.
Lender Perspective
Singapore’s lenders seem to increase the rates on home loan packages recently which became one of the major problems for Singapore Banks’ Mortgage Hikes. DBS Group Holding Ltd., Singapore’s biggest lender, raised the fixed rate of interest on all of its home loans to 3.5% while United Overseas Bank Ltd. increased its rate of interest on its three-year fixed product to 3.85% and Overseas Chinese Banking Corp. increased its rate of interest on its two-year product to 3.5%. Mortgage rates above 4% make it difficult for borrowers to cover their necessities and repay the loans in Singapore. According to BI’s analysis, a 20 or 30-year loan of every S$1 million which is equal to $702,000 would require a monthly repayment of about S$4,774 to S$6,060 which became a major problem for the borrowers. But an average Singaporean’s nominal wage is compared to be S$5,847. 80% of Singaporeans live in public housing. In Singapore, this public housing normally costs below S$1 million. This increase in rates made the Monetary Authority of Singapore (MAS) adjust its monetary policy three times since last October.
Closing
Singaporean banks have increased their rates many times already this year. According to the Straits Times, DBS raised its home loan fixed rate packages to 2.75% in June, while UOB raised its three-year fixed rate package to 3.08%. Although the government has mentioned its aim to justify the rapid increase in mortgage rates, the act has not been in favor of the residents.
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