Impact of Rapidly Rising US Long-term Interest Rates on Singapore and Singaporean Households with Exposure to Property Mortgages
Prime Minister's OfficeSpeakers
Summary
This question concerns the impact of rising US interest rates on Singapore and property mortgage holders, as raised by Mr Desmond Choo to the Prime Minister. Senior Minister Tharman Shanmugaratnam stated that US rate hikes reflect an economic recovery benefiting Singapore, though domestic interest rates will likely rise accordingly. He noted that the Total Debt Servicing Ratio framework safeguards households by stress-testing mortgages at a 3.5% interest rate floor, which is significantly above market levels. Analysis shows median mortgage servicing remains manageable even under a 2.5 percentage point rate increase and a 10% income decline. The Senior Minister cautioned buyers to remain prudent and ensure loan affordability before making long-term financial commitments.
Transcript
4 Mr Desmond Choo asked the Prime Minister (a) what is the impact of rapidly rising US long-term interest rates on Singapore; and (b) how will it affect Singaporean households with exposure to property mortgages.
Mr Tharman Shanmugaratnam (for the Prime Minister): Since the start of the year, financial markets have been anticipating a robust US economic recovery, especially in light of the country's large fiscal stimulus package and the ongoing progress in vaccinations. The bond market expects that the strong economic expansion will lead to higher inflation, and has hence pushed up long-term interest rates. Notwithstanding this, long-term rates remain near record lows.
The rise in interest rates in the US should therefore be seen in the context of a strong recovery in the US economy, which will benefit the global economy and add some momentum to our own economic recovery in Singapore. The Singapore economy is projected to experience broad-based growth of 4 to 6% this year, a reversal from the 5.4% contraction in 2020. Employment and income prospects are also projected to improve this year.
Singapore's domestic interest rates are largely influenced by global market movements and especially by US rates. They can hence be expected to rise going forward. If and when that happens, debt servicing costs for borrowers will also increase. However, most households should continue to be able to service their mortgage loans. This is because all property mortgages taken up since 2013 are subject to MAS' Total Debt Servicing Ratio ("TDSR") framework, which limits monthly loan repayments to no more than 60% of the borrower's income based on a 3.5% interest rate1, which is significantly higher than current rates of less than 1.5% for new private property loans2.
MAS' analysis also shows that the median household’s mortgage servicing ratio would remain manageable even under a stress scenario of a 2.5%-point increase in mortgage interest rates and a 10% fall in income. However, a small segment of households within the private property market could face cash flow strains.
The risk of rising interest rates is a reminder that everyone should continue to exercise caution in their property purchase decisions. Buyers should assume that interest rates will rise, and be sure of their ability to service their loans before making long-term financial commitments.