Homeowners in Singapore could soon feel pinch from rising mortgages

On Jul 27, 2022

Banks in Singapore raised housing loan rates in June, following the U.S. Federal Reserve’s decision to increase interest rates by 75 basis points in the same month to cool inflation — its most aggressive hike since 1994.

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Homeowners in Singapore are starting to tighten their belts as they will soon face higher mortgages, thanks to rising interest rates.

The country’s three largest banks raised housing loan rates in June, following the U.S. Federal Reserve’s decision to increase interest rates by 75 basis points in the same month to cool inflation — its most aggressive hike since 1994.

DBS raised rates on its two- and three-year fixed packages to 2.75% per annum; OCBC increased its two-year fixed rate to 2.98%; and UOB its three-year fixed rate package to 3.08% per annum. Rates have been on the rise since late last year, when three-year fixed rates were at 1.15%.

Property experts are saying the increase in rates is not surprising.

A housing loan with a rate of about 2% interest is considered “super cheap,” said Christine Li, head of research for Asia-Pacific at Knight Frank.

Homeowners with an existing property 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.

But residents who own private properties and have their mortgages tied to a bank loan are starting to feel the pinch.

Tan, 34, who works in a software company and wanted to be referred to only by her last name, and her husband, 36, bought a condominium in 2021 for 1.75 million Singapore dollars ($1.26 million). They applied for a SG$1.31 million two-year fixed-rate mortgage from a local bank with 1.1% interest.

Tan said she initially felt relieved when she heard the news as they would not be affected immediately. But panic set in when she realized their mortgage could increase around the end of 2023 when their fixed-rate ends.

The couple currently pays SG$4,274 a month for their mortgage and expects 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 public housing owners

The situation is similar for Singaporean owners of public housing apartments — known locally as HDB flats — whose mortgages are likewise tied to bank loans, rather than the country’s public housing authority.

Regine, 25, who works as a public affairs executive and wanted to be referred to only by her first name, belongs to the first group. She bought a SG$482,000 four-room resale apartment in 2020 with a five-year fixed rate package from DBS with 1.4% interest.

“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…