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Mortgage repayments manageable despite higher rates, likely to increase next year: MAS

By Nur Hikmah Md Ali

/ EdgeProp Singapore |

November 28, 2023 3:33 PM SGT

Monetary Authority of Singapore: Households have weathered the rising rates well and can cope with refinancing at higher rates (Photo: Samuel Isaac Chua/EdgeProp Singapore).

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SINGAPORE (EDGEPROP) - Households in Singapore have been able to manage their overall debt repayments despite higher mortgage rates and property prices, which have increased considerably since 2H2022, says the Monetary Authority of Singapore (MAS) in a review released on Nov 27.

The central bank’s financial stability review is a regular assessment of risks and vulnerabilities arising from developments in the country and the global economy, and their implications on Singapore’s financial system.

The review found that the monthly mortgage instalments for new loans from financial institutions have increased significantly, with the mortgage rate at 3.8% this year. This is a jump from 1.7% last year, and 1.2% in 2021.

However, the total debt servicing ratio (TDSR) has remained stable, with the median TDSR at around 43%. In the report, MAS says that this reflects conservative credit assessment practices at the point of mortgage origination. For example, financial institutions must ensure that a borrower’s TDSR is capped at 55% of their monthly income.

Existing mortgages

Households with existing mortgages have lower loan-to-value (LTV) ratios. LTV ratio refers to the loan amount as a percentage of the property's value. The lower LTV ratio is due to the households’ declining loan balances and rise in property prices, MAS says.

As of the end of 2022, more than half of the existing mortgages which have been extended by financial institutions have less than 20 years of residual loan tenure. The median tenure at mortgage origination has remained at about 26 years in recent years. MAS places a cap of 30 years on the maximum loan tenure for HDB flat mortgages and 35 years for non-HDB properties.

However, loans that originated or were last refinanced in 2021 have seen the largest increase in monthly mortgage instalments. The prevailing mortgage rates were about 1.2% in that year.

Within this particular group, the increase is more pronounced for fixed-rate loan packages that were refinanced at a higher average rate of 3.7% between January and August this year. Such households face an immediate rise in repayments, with an average monthly mortgage instalment increase of $680, which is about 6.7% of their monthly income in 2021.

However, MAS says that strong income growth of these households has mitigated the impact of higher mortgage rates. These households have seen an increase by about 15% on average in monthly income since 2021.

The central bank predicts that more households could face higher mortgage rates next year.

If mortgage rates remain higher than in 2021/22, households with an existing fixed-rate loan package may see an immediate increase in monthly mortgage instalments upon refinancing next year. This accounts for about 10% of all housing loans.

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