Middle-income earners to be highly affected by rising home loan interest rates

Singapore. Last June, new private residential sales in the country crashed by a staggering 64%. This was largely attributed to banks increasing their fixed-rate home loans or suspending them.

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According to Colliers’ Director and Head of Research Catherine He, the banks’ suspension of loans will largely affect the sales volume and prices for residential homes, and the most affected areas will be in the Outside Central Region since buyers here are more sensitive when it comes to prices. Prices in the Rest of the Central Region are also expected to experience a sharp rise.

As interest rates rise above 3%, the monthly instalment plans of homeowners may rise more than their monthly rental income, especially because they would not be able to change the rates while the contract is still in place.

“Interest rates for floating rate is still about 1.5% whilst fixed is just above 2%. As total debt servicing ratio uses 3.5% interest rate for the calculation, most people should still be able to service their loan when interest rates stay below 3.5%,” shared OrangeTee Senior Vice President of Research & Analytics, Christine Sun.

“The affordability threshold for middle-income owners, especially those holding multiple properties, are likely to be more affected,” Sun added.

Wong Siew Ying, PropNex Realty Head of Research and Content, said that homebuyers can adjust their requirements such as the size of the unit and location to keep the price more manageable.

The suspension is not expected to majorly impact the HDB and private residential market since most buyers choose floating rate loans for these properties.

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Real estate experts are encouraging budding homeowners to opt for a three-month SORA (Singapore Overnight Rate Average) based loan. Its interest falls around 1.5%.

Homeowners can also opt for an HDB Housing Loan. This option has an interest rate pegged at 0.10% above the prevailing Central Provident Fund (CPF) Ordinary Account interest rate, which is 2.60% per annum (p.a.) as of press time.

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