With the ongoing worries about job losses, stock market volatilities, gradual interest rate normalisation and the ongoing property cooling measures to be remained in place, many households are quite concerned about their household expenses that are tied to their home mortgage debt. These concerns are justified given the various uncertainties, and most of them are taking steps to minimise the elevation of housing debt on their balance sheets
Moderation shown in housing indebtedness
In a semi-annual Financial Stability Review report released by the Monetary Authority of Singapore (MAS) in November 2015, it noted that the growth of housing loans has declined to 4.8% yearly in 3Q2015, from 6.5% yearly in 3Q2014. The housing loan growth is illustrated in the chart below:
Most housing loans have also exhibited loan-to-value (LTV) ratios of 80% or lower, and this is partly attributed to the Total Debt Servicing Ratio (TDSR) framework introduced in 2H2013 where all new housing loans assigned need to conform to the 60% LTV threshold. This means that borrowers are restricted to loan amounts of 60% of their total gross monthly income minus all the outstanding borrowings.
Pace of interest rate hikes has slowed down
At the end of last year, many analysts have forecasted the three-month Singapore Interbank Offered Rate (SIBOR) to end at close to 2% by the end of 2016 following the December 2015 rate hike of 25 basis points (bps) by the United States Federal Reserve Bank. The SIBOR subsequently rose to 1.2% from about 1.15% at the end of 2015. With three months of 2016 just ended, the three-month SIBOR rate has since moderated to 1.16979% as of March 30, 2016. The latest rate move took into account the March Fed meeting announcement where monetary policymakers have decided to slow down the pace of interest rate hikes due to concerns over potential spillover effects from the global economic slowdown.
However, the US Fed is not expected to halt all interest rate hikes altogether and the gradual normalisation process of interest rate growth will still continue. The US economy is not doing badly with headline employment numbers came in with 215,000 jobs created, and the unemployment rate stayed stable at 5% in March 2016. If the US economy and other countries are projected to grow at a gradual pace, albeit a slow one, the SIBOR rates will also react, and the quarterly forecast is expected to stay stable at around 0.87% by the end of 1Q2017, before dropping to 0.58% by 2020.
Should Singapore households remain cautious about housing debt vulnerability
The question over the stability of housing debt going forward is largely dependent on job certainties, continued wage growth, and the robustness of Singapore’s economy. In short, households who took on variable rate-type housing loans need to start to look into the possibility of restructuring their housing loans with their mortgage bankers.
The economic slowdown could also be an opportunity for households to think about their household balance sheets, and not go overboard with taking on additional housing leverage if they can. Although the US Fed have decided to slow down their pace of interest rate hikes this year, Singapore’s overall economy is still susceptible to many external economic events including the ongoing slowdown of China’s economy, falling oil prices, declining tourism revenues, and job cutbacks. If these factors were to last longer that expected, the debt burdens arising out of not reworking their housing loans are expected to rise, leading to possible severe cutbacks, and possibly getting oneself entangled by unnecessary debt-related costs.