Published July 23, 2013
5-10% borrowers over-leveraged on property purchases: MAS
By
Siow Li Sen
THE Monetary Authority of Singapore (MAS) is concerned about Singaporeans over-extending themselves with property loans.
If mortgage rate were to rise by 3 percentage points, proportion of borrowers at risk could reach 10-15 per cent, from estimated 5-10 per cent now who are already over leveraged on their property purchases, MAS said on Tuesday.
Singapore's banking system remains sound and local banks have strong financial positions, are well capitalised with prudent provisions against loss, said Ravi Menon, MAS managing director.
"They have healthy buffer against property price reductions. Average housing loan-to-value ratio in banking system is just under 50 per cent," he said.
"It is household sector we are concerned about," he said.
At aggregate level, household balance sheets are resilient. Cash and deposits exceed household debt.
"But the health of balance sheet is not uniform across all households," said Mr Menon.
"Many households could have over-extended themselves, fueled by low interest rates and stretched loan tenures," he said.
"It is so tempting and easy to borrow when interest rates are so low," he said.
A vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise.
MAS estimated 5-10 per cent of borrowers have probably over leveraged on their property purchases, which is defined when they have total debt service payments at more than 60 per cent of their income.
Last month, MAS introduced the total debt servicing ratio framework where a borrower's total monthly debt payments must not exceed 60 per cent of monthly income.