SINGAPORE - The era of ultra-easy money is drawing to an end for Singapore mortgage holders, with domestic interest rates rising at their fastest pace in a decade in a country that already ranks among the world's most expensive places to live.
The three-month Singapore interbank offered rate (Sibor), used to set floating-rate mortgages, climbed to 0.78756 per cent on Tuesday. It has gained 33 basis points so far this year, exceeding all the annual increases since 2005.
Analysts expect the rate to end 2015 at around 1.0 per cent. The surge has been fuelled by the Singapore dollar's weakness against the greenback. A softer Singapore dollar can put upward pressure on local interest rates as investors seek higher yields as compensation for holding a weakening currency.
Exacerbating the Singapore dollar's fall and boosting Sibor, the central bank in late January allowed the currency to appreciate at a slower pace.
Most economists polled by Reuters expect the Monetary Authority of Singapore to further ease policy next month. Analysts say three-month Sibor may stabilise as the Singapore dollar adjusts to the policy shifts.
Mortgage borrowers will probably feel more impact from the rising Sibor in the second half of 2015, as interest rates on mortgages tend to be set every three months, said Michael Wan, an economist at Credit Suisse.
Singapore's real estate has already been stung by government measures aimed at cooling the market, particularly in the high-end private-homes segment.
Higher mortgage rates will dampen the broader home market dominated by government-built housing now in the private sector and owned by ordinary Singaporeans. The impact on discretionary spending by households will likely be more evident in the second half, Wan said.
The outstanding amount of household mortgages rose nearly 37 per cent to S$216.7 billion ($158.84 billion) at the end of 2014 from 2010 in a period of near zero interest rates.
A typical floating-rate loan for a government-built flat is worth about S$300,000 with a tenure of around 25 years. If the loan was taken at the start of 2014, the interest rate would have hovered near 1.3 per cent through the year, with three-month Sibor roughly around 0.4 per cent.
The monthly loan repayment, consisting of principal and interest repayments, would have been about S$1,170.
Assuming the mortgage rate is now re-set to 1.68 per cent based on current Sibor levels, the repayment would increase by roughly S$50, said Wayne Quek, a Singapore-based mortgage consultant.