One in three homeowners with outstanding mortgages from financial institutions had loans moving in tandem with market interest rates in the second quarter of this year, the Minister of State for Trade and Government said on Thursday. Industry, Alvin Tan.
Even so, Singapore’s household debt situation remains healthy, with a low proportion of non-performing mortgages among financial institutions at 0.3%.
The number of foreclosures has also been on a downward trend since 2021 and has remained low at less than 30 units so far this year, said Mr Tan, a board member of the Monetary Authority of Singapore (MAS).
He said: “As rates continue or may continue to remain high beyond the next two to three years, all households will face higher borrowing costs than they do today and therefore need to exercise caution. caution in their new borrowings.”
He was responding in Parliament to questions from Mr. Desmond Choo (Tampines RCMP) and Mr. Alex Yam (Marsiling-Yew Tee RCMP) about the impact of higher interest rates on businesses and homeowners with loans private financial institutions.
Mr Tan said MAS does not expect widespread foreclosures in the short to medium term, adding: “The situation, in fact, partly reflects the measures we have put in place over the years to limit the amount that can be borrowed to buy property, including our recent new 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, Tan said.
“A relatively small proportion of highly indebted households, however, may be more constrained in a stressed scenario.”
Mr. Saktiandi Supaat (Bishan-Toa Payoh GRC) asked whether the regulator’s stress tests take into account the risk of mortgage interest rates potentially exceeding 5%.
Mr. Tan replied that the tests suggest that most households, including borrowers on variable rate packages, should be able to service their debt even under “very conservative interest rate shock scenarios.” simultaneous interest, loss of income and also a full pass-through of high global interest rates”. rate hikes.
These tests assess debt repayment capabilities based on income and exclude household savings such as cash and funds from the Central Provident Fund ordinary account that will provide financial buffers, he noted.
The MAS stress tests on new borrowers also assessed that most households should be able to continue to repay their debt even in the face of a 400 basis point increase in interest rates and a reduction in interest rates. 10% of their income, Mr. Tan said.
“MAS is working closely with the MND (Ministry of National Development) to carefully monitor this situation. And for those who are unable to service their loans, we will find ways to enable debt repayment restructuring as well as finding alternative accommodation,” he said.
Choo asked about the authorities’ forecast for non-performing loans, especially those taken by small and medium-sized enterprises (SMEs), in an environment of rising interest rates and higher financing costs.
“If and when we see large numbers of businesses facing insolvency, under what circumstances will business or government step in and help those businesses, especially the most promising ones, through a difficult time?” He asked.
Mr. Tan replied that most companies listed in Singapore continue to hold sufficient liquidity in the first half of 2022, from assets such as cash that exceed the short-term liabilities of these companies. MAS stress tests of listed companies’ balance sheets show that most companies will withstand further interest rate hikes and earnings shocks.
“In the unlisted sector itself, most companies also have good debt service capacity or sufficient liquidity to cover their short-term funding or operational needs,” he said, adding that businesses can also leverage various programs to access finance, transform their operations. and increase productivity.