Singapore’s household debt ‘remains healthy’ even with latest rise in interest rates: Tharman

SINGAPORE’S household debt situation “remains healthy”, Senior Minister Tharman Shanmugaratnam said on Tuesday (Jul 5) in reply to parliamentary questions on rising interest rates and inflation.

But Tharman, who is also chairman of the Monetary Authority of Singapore (MAS), added that the central bank “urges households to exercise caution in their new borrowings”.

“They should plan for further interest rate increases, and be sure of their ability to service their loans before making additional long-term financial commitments,” he said.

The minister disclosed that the median total debt servicing ratio (TDSR) stood at 43 per cent for new loans issued over the past year, under the regulatory limit of 55 per cent. The TDSR weighs borrowers’ monthly spending on credit facilities – such as mortgages, car loans, and unsecured debt – as a share of income.

Meanwhile, the median loan-to-value ratio for the outstanding stock of mortgages was less than 50 per cent in the first quarter of 2022, which meant that “in most cases, property prices would have to fall significantly for lenders to realise losses”.

People’s Action Party (PAP) MP Gan Thiam Poh (Ang Mo Kio GRC) had asked whether the prevailing TDSR ceiling – tightened from 60 per cent in end-2021, as part of property market cooling measures – was “sufficient to prevent and minimise systemic risk to both financial institutions and borrowers”.

Tharman, replying on behalf of the Prime Minister, said that the TDSR offers a buffer against rising interest rates, “such as what is occurring now”. In calculating mortgage obligations, the TDSR takes the higher of either the market rate or an interest rate of 3.5 per cent.

Both the household debt situation in Singapore and credit profile of mortgages are healthy, said Tharman, while disclosing that the share of delinquent mortgages stood at less than 1 per cent.

In reply to separate questions from PAP MP Tan Wu Meng (Jurong GRC) on Singaporeans’ debt exposure and household vulnerability, Tharman said that MAS stress test findings “suggest that most households should still be able to service their debts but there will be a small segment of households which may be more constrained” by the rising rates.

SEE ALSO

Covid-19 debt relief ‘not meant to insulate borrowers’ from rising rates; household, business debt still manageable: Alvin Tan

Fixed-rate mortgages in Singapore seen hurtling towards 3%

Singapore households, businesses to brace for interest rate ‘shock’; Fed hike to slow Asean recovery: Economists

“Such vulnerable borrowers should approach their lenders early to explore possible loan refinancing and repayment solutions,” Tharman advised.