Singapore: MAS does not see rising rates leading to rising foreclosures

Singapore's financial regulator, the Monetary Authority of Singapore, has responded to a Parliamentary Question by stating it does not expect widespread foreclosures in the jurisdiction in response to rising interest rates.

The response came to a question put by Alex Yam Ziming, MP. The answer was provided by Alvin Tan, minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and board member of MAS, on behalf of Tharman Shanmugaratnam, senior minister and minister in charge of MAS.

The question read: "To ask the Prime Minister (a) what proportion of home owners with loans from private financial institutions have been affected by the rise in interest rates; and (b) what is the risk and magnitude of foreclosures in the near- to medium-term." 

Tan responded that:

1. Households with outstanding mortgages will see higher borrowing costs as market interest rates rise from the exceptionally low levels of the past decade. They will face the impact of the rise at different points in time, depending on the type of loan packages that they have taken up. 
2. As of Q2 2022, one out of three homeowners with outstanding mortgages from financial institutions (FIs) are on mortgage packages that move in tandem with market interest rates. These borrowers have already seen mortgage repayments rise over the past months. The remaining borrowers are either (i) on rates linked to bank board rates or fixed deposit rates, which track market interest rates but with some lag, or (ii) on fixed interest rates for the first two to three years of their loan. Regardless, as rates could remain high beyond the next two to three years, all households will face higher borrowing costs than today and should therefore exercise prudence in new borrowings. 
3. On the whole, the household debt situation in Singapore remains generally healthy. The proportion of non-performing mortgages among FI loans is low at 0.3%.  The number of foreclosures has in fact trended down since 2021 and has remained low at fewer than 30 units so far this year. MAS does not expect widespread foreclosures in the near to medium term. This situation reflects in part the measures we have put in place over the years to limit the amount one can borrow to buy property, including our recent further tightening of the limits. Stress tests by MAS suggest that most households should still be able to service their mortgages under scenarios of further interest rate hikes and significant income losses. A relatively small proportion of highly leveraged households may however be more constrained under the stress scenario.

The MAS monetary policy statement published on 14 October noted that CPI-All Items inflation rose to 7.3% in the July-August period from 5.9% in Q2.

It added: "For the rest of 2022, the confluence of demand and supply factors that drove the price increases in July-August is expected to persist. A tight domestic labour market will support robust wage increases, while imported inflation will remain significant across a range of intermediate and final goods."