QUESTION NO 589
NOTICE PAPER 348 OF 2021
FOR WRITTEN ANSWER
Date: For Parliament Sitting on 5 April 2021
Name and Constituency of Member of Parliament
Mr Desmond Choo, MP, Tampines GRC
Question:
To ask 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.
Answer by Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS:
1. 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.
2. 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 4-6% this year, a reversal from the 5.4% contraction in 2020. Employment and income prospects are also projected to improve this year.
3. 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 rate
4. 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.
5. 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.
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[1] Or market rate whichever is higher.
[2] HDB housing loan rates are pegged to the prevailing CPF Ordinary Account interest rate, which tends to be stable.