Banks in Singapore raised home loan interest rates in June, after the US Federal Reserve decided to raise interest rates by 75 basis points in the same month to cool inflation – the steepest rise since in 1994.
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Homeowners in Singapore are starting to tighten their belts as they will soon face higher mortgages due to rising interest rates.
The country’s three biggest banks raised home loan rates in June, following the decision by the US Federal Reserve to raise rates by 75 basis points in the same month. to cool inflation – the strongest increase since 1994.
DBS raised interest rates on two- and three-year fixed packages up to 2.75% per year; OCBC has increased two-year fixed rate to 2.98%; and UOB has a fixed interest rate plan for three years of 3.08% per annum. Rates have been on the rise since late last year, when the three-year fixed rate stood at 1.15%.
Real estate experts say the rate increase is not surprising.
Christine Li, head of research for Asia Pacific at Knight Frank, said a home loan with an interest rate of around 2% is considered “super cheap”.
Homeowners with existing properties have been “enjoying very low mortgage rates for two years, and now it’s just normalized (from) two or three years ago,” she said.
But residents who own private property and have their mortgages tied to bank loans are starting to feel the pinch.
Tan, 34, works in a software company and only wants to be mentioned by her last name, and her husband, 36, bought a condominium in 2021 for S$1.75 million ($1.26 million). They applied for a S$1.31 million two-year fixed-rate mortgage from a local bank with an interest rate of 1.1%.
Tan said she was initially relieved to hear the news as they would not be immediately affected. But panic started when she realized that their mortgage could increase around the end of 2023 when their fixed rate ended.
The couple are currently paying $4,274 SGD per month on their mortgage and expect it to “go up significantly,” she said.
“What we’re going to have to do is cut spending on unnecessary things – [fewer] Tan said.
Two scenarios for owners of public housing
The situation is similar for Singaporean public housing flat owners – known locally as HDB flats – who have similar mortgages tied to bank loans, not bank loans. the country’s public housing authority.
Regine, 25, who works as the executive director of public affairs and wants to be mentioned only by her name, is in the first category. She purchased a S$482,000 four-room apartment for resale in 2020 with a 5-year fixed-rate plan from DBS with an interest rate of 1.4%.
“We’re still early in the lease, so it’s a relief that we’ve closed a good deal and we’re safe for the next few years,” Regine said. “Interest rates are crazy now.”
She added: “The market is very volatile, so we expect that interest rates will be stable over the next five years and bank rates will not be higher than HDB rates.
When asked how the couple would cope if interest rates remained high in the coming years, she said they were “still very comfortable” as they did not overspend on the house.
Knight Frank’s Li estimates that Singapore residents who own public housing could see their monthly mortgage increase from $200 to $300 with current rate hikes.
But apartment owners who have opted for an HDB home loan instead of a bank loan are likely to be in better shape.
Their loan comes with an interest rate of 2.6% – lower than bank loan packages.
Samantha Pradeep, 31, who owns a five-room apartment worth S$380,000 with her husband, said she was comfortable with her decision to opt for an HDB loan even though the bank loan interest rate was “a bit more attractive” in 2017 when they bought the house.
“It was a war between banks and HDB loans five years ago, but it is very different now,” she said. “If we took out a bank loan, it would affect our finances quite a bit right now.”
Singapore Introduce new measures in mid-December to cool down the country’s heating private and residential real estate market. It increased taxes on second and subsequent real estate purchases, and imposed tighter limits on loans.
The government also said it would increase the supply of public and private housing to meet strong demand, Ministry of National Development reports in the same month.
Go over the border to
In Malaysia, mortgage prices are relatively stable.
The country’s central bank raised interest rates on July 6 by 25 basis points, but real estate experts say the increase won’t have much of an impact on mortgage prices.
Ng Wee Soon, a Malaysian who owns two investment properties in Johor Bahru that cost around 500,000 Malaysian ringgit ($112,000) each, said increasing mortgages could cost him “about $100″ per property”.
Knight Frank’s Li says people with a lot of assets will have to spend their cash every month as mortgage rates go up. “But if the rental market recovers…investment property owners could adjust rental rates to capture a higher return on rental yields.”
However, Ng said with Malaysia’s economy still recovering from the pandemic and the country’s housing surplus, he would rather “accept the cost of higher mortgages, than raise rents.” .”
– Abigail Ng of CNBC contributed to this report.
