Sudden Spikes on Singapore Interest Rate Threaten Mortgage Costs

Home prices have dropped down substantially since the government imposed measures to limit debt servicing costs and decrease mortgage financing defaults, according to a report by Bloomberg. Loan-to-value ratios above 80% for one have decreased substantially – from 17% in 2009, to only 5% in the last quarter of 2014.

However, these recent government breakthroughs are threatened. With the possible increase on housing loans and mortgage financing, vulnerable borrowers might just take the hit, otherwise, the economy might slow down.

Effect of the decrease in value of the Singapore dollar

The depreciation of the Singapore dollar as against the US dollar has put up an upward pressure on the local interest rates. This is because a weaker currency causes investors to seek better opportunity in terms of return on investments.

As a result, the Singapore interbank offered rate or SIBOR has climbed from around 0.4% to 0.78756% just this month. In fact, it is even expected that by the end of the year, the SIBOR’s expected reference rate would increase up to 1%.

Spike of SGD Interest Rate: Impact on borrowers

Housing prices have dropped substantially in the past year through the government’s efforts of decreasing debt repayments and defaults. The highlight of these measures is their strict policy in limiting monthly debt repayments at only 60% of the borrower’s gross monthly income.

While these changes have been doing a good job at effectively curbing debt defaults, and enabling borrowers to purchase homes at a cheaper cost, such measures may not be imposed for long.

Due to the increase in interest rate on property prices, the government may soon find that such strict measure may no longer be beneficial. This could take a hit on borrowers – both new and old – as while they may have recently and comfortably adjusted to the new measures, they may have to adjust again to conform to new planned government policies for the improvement of economic stability and appreciation of local currency.

Floating interest rates on current mortgage financing may spike against their favour and they won’t be able to do anything about it.

If these housing prices fall faster, the Singapore government may be able to hold on to the current measures for now. However, at present, borrowers are expected to feel the impact of the rate increase in the second half of 2015.


If you are interested in getting a home loan, it’s best to first seek advice from a reputable consultant about mortgage financing. Our loan advisors at Suite Capital are happy to listen to your needs and would love to advise you on the most fitting loan packages that suit your lifestyle and capacity. Call +65 6844 0833 or email us at anytime of from Monday thru Friday.

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