Chief Editor July 06 2022

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Rising interest rates in Singapore housing loans

DBS Bank, OCBC and UOB have recently raised the interest rates for all its housing loan packages after taking their cues from the United States Federal Reserve, which has made three rate hikes this year to combat surging inflation.

US federal reserve raised interest rate by 0.25% and 0.5% in March and May respectively. 

As US inflation accelerated to a 40-year high in May, the Fed was forced to hike its benchmark federal-funds rate by 0.75% to a range between 1.5 and 1.75 per cent in June.

Monetary Authority of Singapore (MAS) uses exchange rate of Singapore dollar (SGD), instead of interest rate, as its main policy tool. MAS lets the exchange rate float within an unspecified policy band, and changes the slope, width and centre of that band when it wants to adjust the pace of appreciation or depreciation of the Singapore dollar.

Singapore benchmark rates namely Singapore overnight rate average (SORA) and Singapore interbank offered rate (SIBOR) have gone up.

Singapore overnight rate average (SORA), computed from the volume-weighted average rate of borrowing transactions in the unsecured overnight interbank Singdollar cash market. 

The three-month compounded SORA, a benchmark that is used by Singapore banks to price floating home loans, has rose to 0.8 per cent in July.

Whereas the three-month SIBOR has gone up to 1.91 per cent this week.

DBS Bank scrambled to withdraw its five-year 2.05% fixed-rate package for HDB flat buyers has sounded the alarm that low interest environment is a thing of the past. 

As of today 6 July, OCBC and UOB two-year fixed interest rate is at 2.98% for its housing loan package. Whereas DBS has the lowest at fixed 2.75% interest rate.

Senior Minister Tharman Shanmugaratnam has assured that the Singapore household debt situation remains healthy in response to parliamentary questions on rising interest rates and inflation.

Tharman, who is also the chairman of the Monetary Authority of Singapore (MAS), advised Singaporeans to be prudent and be prepared for further increases in interest rates. The home buyers should consider carefully their ability to service their housing loans before making long-term financial commitments. 

Senior minister revealed that the median total debt servicing ratio (TDSR) remained at 43 per cent for new loans issued over the past year whereas the regulatory limit is 55 per cent. The TDSR takes into full consideration the borrowers’ monthly spending on credit facilities, including but not limited to mortgages, car loans, and unsecured debt.

In addition, the median loan-to-value (LTV) ratio for the outstanding stock of mortgages was below 50 per cent in the first quarter of 2022, Therefore, the property prices would have to fall significantly before the banks will inform borrowers to top up the difference as the value of their property plummets.