Higher interest rates aren’t deterring property buyers, but a lower borrowing cap could
Higher interest rates aren’t deterring property buyers, but a lower borrowing cap could. Prime Minister Lee Hsien Loong noted in his National Day statement that the world is “unlikely to return anytime soon to the low inflation levels and interest rates that we have enjoyed in recent decades.”
Such possibilities should give multi-property owners much to think about – and be concerned about. Prof Sing believes that even a 1% increase in interest rates might have a “significant impact” on homeowners’ monthly payments, depending on the amount borrowed from banks. According to MoneySense’s mortgage calculator, a 30-year S$500,000 loan at 1% annual interest would result in a monthly repayment of S$1,608.
When loan rates approach 3%, monthly repayments increase by 31% to S$2,108, which is significantly more than most people can expect in annual wage growth. If interest rates were to climb to 5%, the borrower’s monthly payments would increase by S$2,684 – a 66.9% increase. While this may be quite expensive, it is also necessary to consider the influence on the loan’s amortization schedule, as well as the immediate impact on one’s monthly cashflow.
According to Darren Goh, general director of MortgageWise.sg, the weightage of principle reduction and interest components in monthly repayments will impact borrowers. “When the interest rate is 1.5 percent, as many of us are accustomed to,” he continues, “you see your loan drop quite quickly, since… roughly 70% of what you pay every month reduces your loan and only 30% is interest.” “If it’s 3.5%, the pendulum returns.” Despite the possibility of rising debt levels, many market experts appear unfazed for the time being. Bank floating rates ranged from 1.9 percent to 2.1 percent in early August, according to MortgageWise statistics.
The rigorous borrowing restrictions on Singapore house loans will also keep this under control. In Singapore, homebuyers are subject to a total debt servicing ratio (TDSR), which limits total debt payments to 55% of income. Multiply mortgage liabilities by 3.5 percent or the current market rate, whichever is greater, to calculate this ratio. According to Leonard Tay, head of research at Knight Frank Singapore, “the TDSR acts as a cushion or buffer against overextending leverage.” “They have a cushion to allow interest rates to rise without jeopardizing their financial situation.”
Click the image to read the full details of report or at this link: