Bankruptcy applications up to 959 in Q1 and may rise further; property foreclosures yet to pick up

INDIVIDUALS filed 959 bankruptcy applications in the first quarter of 2023, a slight uptick from the quarterly average of 912 applications in 2022.

This could rise further, “as a small segment of more vulnerable borrowers face higher risks of financial distress amid higher interest rates and slower economic growth”, said Minister of State for Trade and Industry Alvin Tan in Parliament on Tuesday (May 9).

On mortgage listings, he noted that property-related foreclosures are yet to pick up.

Five commercial loans were foreclosed by financial institutions in Q1 2023, compared to an average of four last year.

For residential loans, five were foreclosed in the first quarter, compared to an average of 12 per quarter in 2022.

People’s Action Party Member of Parliament Saktiandi Supaat flagged a previous written answer to a parliamentary question, which said that an average S$240 increase in mortgage payments – or about 2 per cent of these borrowers’ monthly income – was estimated for close to 27,000 homeowners, who refinanced their mortgages in the 12 months from March 2022 to February 2023. 

He asked for further updates on household debt situations in Singapore in a supplementary question.

Tan said: “Naturally, households with outstanding mortgages will see higher borrowing costs ... as interest rates rise from exceptionally low levels in the past decade. So, they will face the impact of a rise at different points of time, depending on the types of loan packages that they have taken up.”

Tan noted that as at Q1 2023, about 38 per cent of mortgages extended by financial institutions for private residential property purchases were on floating-rate packages, that move in tandem with market interest rates.

SEE ALSO

Distressed property listings jump in Q1 as bankruptcies rise

The global housing market is broken, and it's dividing entire countries

The remaining 62 per cent were either on rates linked to board rates, fixed deposit rates which track market interest rates but with some lag, or fixed interest rates over the first few years of their loans.

On the increase in mortgage payments, Tan reiterated that the 2 per cent increase comes against a background of a 10 per cent increase in monthly income over the last three years, which would have helped cushion the increase.

Tan also provided updated data for mortgages refinanced between August 2022 and February 2023.

For example, on the higher end, those whose loans were accepted or at least last refinanced in February 2022 at an interest rate of about 1.8 per cent faced an average increase in monthly payment of about S$730, or about 6 per cent as a share of monthly income, after refinancing in February at an interest rate of about 3.9 per cent, he said.

But he added that, again, the average 10 per cent increase in monthly income over the past years would have helped to cushion the impact.

Responding to Saktiandi’s supplementary question on mortgage listing data, the minister of state said that their use as an indicator of households and businesses in distress may be limited.

The extent of distressed sales could be overstated, partially due to over-counting, he said, adding that while “we are not privy to the auction houses’ methodologies”, there are challenges in tracking such data, with no central database. Quarter-on-quarter changes could also suffer from the low base effect due to seasonal market activity, he noted.