Homeowners in Singapore may soon feel the pinch of rising mortgage lending

Singapore banks raised home loan rates in June, following the US Federal Reserve’s decision to raise interest rates by 75 basis points in the same month to calm inflation – its most aggressive rise since 1994.

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Homeowners in Singapore are starting to tighten their belts as they will soon face higher mortgages, thanks to rising interest rates.

The country’s three largest banks raised rates on home loans in June, following the US Federal Reserve’s decision to raise interest rates by 75 basis points in the same month. to calm inflation – its most aggressive rise since 1994.

DBS increased the prices of its fixed two- and three-year plans to 2.75% per year; OCBC raised its two-year fixed rate to 2.98%; and UOB its three-year fixed rate package at 3.08% per annum. Rates have risen since late last year, when three-year fixed rates were at 1.15%.

Real estate experts say the rate increase is not surprising.

A home loan with an interest rate of around 2% is considered “super cheap,” said Christine Li, Asia-Pacific research manager at Knight Frank.

Homeowners with existing property would have “enjoyed two years of very low mortgage rates, and now it’s just normalizing (period from two or three years ago”), she said.

But residents who own private properties and whose mortgages are tied to a bank loan are starting to feel the pinch.

Tan, 34, who works at a software company and only wanted to be referred to by her last name, and her husband, 36, bought a condominium in 2021 for 1.75 million Singapore dollars (1.26 million of dollars). They applied for a two-year fixed rate mortgage of SG$1.31 million from a local bank with interest at 1.1%.

Tan said she initially felt relieved when she heard the news, as they would not be immediately affected. But panic set in when she realized their mortgage could go up towards the end of 2023 when their fixed rate ends.

The couple are currently paying S$4,274 a month on their mortgage and expect it to “rise quite significantly”, she said.

“What we should be doing is cutting unnecessary spending – [fewer] restaurant meals, fewer errands and the amount of wine we buy each month,” Tan said.

Two scenarios for social housing owners

The situation is similar for Singaporean owners of public flats – known locally as HDB flats – whose mortgages are also tied to bank loans, rather than the country’s public housing authority.

Régine, 25, who works as a public affairs executive and only wanted to be referred to by her first name, belongs to the first group. She bought a four-bedroom resale flat for SG$482,000 in 2020 on a five-year fixed rate package from DBS with 1.4% interest.

“We’re still at the start of our lease, so it’s a relief that we’ve secured a good deal and are secure for the next few years,” Regine said. “Interest rates are crazy now.”

“Markets are very volatile right now, so we’re hoping interest rates will stabilize over the next five years and bank rates won’t be higher than HDB rates,” she added.

When asked how the couple could cope if interest rates remained high in the years to come, she said they would be ‘still very comfortable’ as they were not spending above their means for the house.

Knight Frank’s Li estimated that Singapore residents who own public housing could see their monthly mortgages rise by $200 to $300 with the current rate hike.

But apartment owners who have opted for an HDB home loan instead of a bank loan may be in a better situation.

Their loan carries an interest rate of 2.6%, less than bank loans.

Samantha Pradeep, 31, who owns a S$380,000 five-bedroom apartment with her husband, said she felt comfortable with their decision to go for an HDB loan despite the fact that the rates bank loans were “slightly more attractive” in 2017 when buying the house.

“It was a neck and neck fight between the bank and the HDB loan five years ago, but it’s much more different now,” she said. “If we had taken out a bank loan, it would have affected our finances a lot at this time.”

Singapore introduced new measures in mid-December aimed at cooling the country’s boiling private and residential real estate market. He raised taxes on second and subsequent property purchases and imposed stricter limits on loans.

The government also said it would increase the supply of public and private housing to meet high demand, the Ministry of National Development reported the same month.

across the border

In Malaysia, mortgage prices have been relatively stable.

The country’s central bank raised interest rates on July 6 by 25 basis points, but real estate experts said the increase would not move the needle on mortgage prices much.

Ng Wee Soon, a Malaysian who owns two investment properties in Johor Bahru that cost around 500,000 Malaysian ringgits ($112,000) each, said increasing mortgages could cost him “around $100 per property”.

People with multiple properties will see their cash outlays eaten away each month as mortgage rates rise, Knight Frank’s Li said. “But if the rental market is resilient … investment property owners are able to adjust the rental rates to achieve higher rental yields.”

However, Ng said that with Malaysia’s economy still recovering from the pandemic and the country’s housing surplus, he would rather “absorb the cost of higher mortgages, rather than increasing rents.”

– CNBC’s Abigail Ng contributed to this report.

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