The rising interest rates are forcing Singapore homeowners to tighten their belts, making it more difficult for them to make mortgage payments.
Following the Federal Reserve’s decision to raise interest rates by 75 basis points to cool inflation in June – its largest hike since 1994 – the country’s three largest banks raised housing loan rates in June as well.
A rate increase of 2.75% per annum was announced by DBS for its two-year and three-year fixed packages; The fixed rate for OCBC’s two-year package has been raised to 2.98%, and the rate for UOB’s three-year package is now 3.08%. Interest rates have been on the rise since late last year, when the three-year fixed rate stood at 1.15%.
The increase in rates isn’t surprising, say property experts.
According to Christine Li, head of research for Knight Frank’s Asia-Pacific region, a mortgage with an interest rate of around 2% is seen as being “super cheap.”
Homeowners who purchased a property some time ago would have “enjoyed two years of very low mortgage rates, and now it’s just the normalization (period from) two or three years ago,” she said.
Nevertheless, the people who own homes with bank loans are starting to feel the squeeze.
Tan, 34, a software developer who wishes to be called only by her last name, bought a condominium with her husband, 36, for 1.75 million Singapore dollars ($1.26 million) in 2021. They submitted an application for a mortgage from a local bank for SG$1.31 million with a two-year fixed-rate with an interest rate of 1.1%.
When Tan heard the news, she first felt relieved because it wouldn’t affect them immediately. After all, she started to panic when she realized that the value of their mortgage could change in late 2023 when their fixed-rate agreement expires.
The couple’s monthly mortgage payment is currently S$4,274 and they are expecting it to “go up quite significantly,” she said.
“What we would have to do is cut back on spending on unnecessary things — [fewer] meals at restaurants, less shopping, and how much wine we buy on a monthly basis,” Tan said.
Two scenarios for landlords in public housing
Similar circumstances apply to Singaporeans who own HDB flats, or public housing apartments, whose mortgages are tied to bank loans rather than the nation’s public housing authority.
When asked, Regine, 25, who works as a public affairs executive and wanted to be referred to only by her first name, confessed that she is one of the individuals in the first group. In 2020, she purchased a resale apartment with four rooms for SG$482,000 from DBS at a fixed interest rate of 1.4%.
“We’re still early into our lease, so it is a relief that we locked in a good deal and that we are safe for the next few years,” Regine said. “Interest rates are crazy now.”
“The markets are very volatile now, so we’re hoping that interest rates will stabilize in the next five years and the bank rates will not be higher than HDB rates,” she added.
Her response to a question about how they would cope if interest rates stay high in the future was “still be very comfortable” and they didn’t spend more than they could afford for the house.
The Knight Frank’s Li estimated that a rate hike would raise monthly mortgages by $200 to $300 for Singapore residents who own public housing.
Flat owners who decided to opt for a HDB housing loan as opposed to a bank loan might be in a better position.
Their loan carries a 2.6% interest rate, which is lower than the interest rate offered by banks.
When Samantha Pradeep, 31, and her husband bought their SG$380,000 five-room apartment in 2017, bank loan rates were “slightly more attractive” than what HDB offers.
“It was a neck and neck fight between the bank and HDB loan five years ago, but it’s a lot more different now,” she said. “If we had taken a bank loan, it would have affected our finances quite greatly right now.”
New measures were introduced by Singapore in mid-December to cool down the country’s overheated residential and private property market. They hiked the taxes on those purchasing second or third homes, and clamped down on home loans.
Also in this same month, the government plans to produce more public and private housing to cope with the huge demand.
The other side of the border
The price of mortgages in Malaysia has remained relatively stable.
A 25 basis point hike in interest rates by the country’s central bank took place on July 6, but property experts suggest the increase won’t make a big difference in mortgage prices.
The increase in mortgage loans may cost Ng Wee Soon, a Malaysian who owns two investment houses in Johor Bahru that cost him approximately 500,000 Malaysian ringgit ($112,000) each, “about $100 per property.”
According to Knight Frank’s Li, with rates for mortgages on properties about to go up, more people with multiple properties will be feeling the crunch every month. “But if the rental market is resilient … investment property owners are able to adjust the rental rates to have higher returns on rental yields.”
Ng, on the other hand, stated that with Malaysia’s economy still recovering from the pandemic and the country’s housing excess, he would rather “absorb the cost of higher mortgages, rather than raising rent.”
