Last month, MAS said that it is concerned over rising household debt in Singapore. The Managing Director of MAS, Ravi Menon warned of rising interest rates which may affect the household sector.
He said, “An estimated 5 to 10% of borrowers have probably over-leveraged on their property purchases, i.e. they have total debt service payments at more than 60% of their income. If mortgage rates were to rise by 3 percentage points, the proportion of borrowers at risk could reach 10 to 15%. In particular, lower income households and those with smaller saving pools may find this a strain. Those with longer tenure loans will also be adversely affected.”
During the parliamentary session yesterday (12 Aug), NCMP Yee Jenn Jong then asked the Govt questions with regard to the household debt situation in Singapore.
Mr Yee asked the followings:
(a) what is the average number of housing loans taken up by over-leveraged borrowers with total debt payments at more than 60% of their income;
(b) what is the average total housing loan owed by these over-leveraged borrowers;
(c) what percentage of total household debt do the housing loans of over-leveraged borrowers make up; and
(d) what estimated percentage of these over-leveraged borrowers can be pushed into forced property sales if the mortgage rates were to rise by 3 percentage points.
Mr Lawrence Wong, Acting Minister for Culture, Community and Youth replied on behalf of MAS. Mr Wong is also a board director of MAS.
Mr Wong said that Singapore’s household balance sheets are on the whole in good shape. Even excluding the value of property assets, cash and deposits owned by households exceed household debt in aggregate.
He added, “Another indication of the health of household balance sheets is the household debt-to-income ratio. This ratio fell in the second half of the last decade, and has since risen because of the strong growth of investments in the property market. However, the debt-to-income ratio, estimated at 2.1 times in 2012, still remains significantly lower than in the middle of the last decade when it peaked at 2.6 times.”
He said that overall, households are currently not more leveraged than they have been in the past decade. The problem instead lies with a segment of borrowers.
“MAS knows from an examination of banks’ credit files that some households are likely to have borrowed too much, lulled by an extended period of low interest rates. They could be vulnerable when interest rates normalise,” he said.
“MAS estimates that about 5% to 10% of borrowers have a monthly debt servicing burden greater than 60% of their monthly income. It is reasonable to consider them as over-leveraged. Housing loans constitute the bulk of their borrowings.”
Mr Wong thinks that most of the borrowers from this over-leveraged group will not default on their loans because they have above-average income levels and are likely to have a larger absolute buffer of income and assets.
Nevertheless, he said the Govt cannot be complacent about household leverage. This is why the government has taken a series of proactive measures to restrain borrowings for property purchases, he said.
“Apart from housing loans, MAS is also dealing with other components of household debt. As Members know, MAS has reintroduced LTV limits and tenure curbs for car loans. MAS has also proposed new rules on unsecured credit and credit cards to help individuals with credit problems avoid further debt. MAS will continue to encourage prudence in both lending and borrowing, and help to keep household debt at a manageable level,” Mr Wong concluded.
Has Mr Lawrence Wong answered Mr Yee’s questions completely?
What do you think?
TR Emeritus
*Article first appeared on www.TREmeritus.com