Most debtors 'can pay off loans even if rates rise'

HIGHER interest rates may not hurt Singapore borrowers as deeply as some have feared, according to a new survey by Credit Suisse.

The investment bank found that debtors here are likely to be able to service their loans comfortably, even when short-term interest rates eventually rise.

Just 3 per cent of borrowers surveyed pay 60 per cent or more of their monthly income in loan repayments, said Credit Suisse economist Michael Wan in the report. Another 3 per cent pay between 50 and 60 per cent of income.

On the other hand, almost 70 per cent of the 140 mortgagors polled direct 30 per cent or less of their monthly incomes towards debt repayments, Mr Wan added.

"On this basis, a rise in interest rates is unlikely to result in huge problems for the majority of households," he said.

Households that have higher debt burdens also tend to have "substantial liquid assets", such as cash savings and bank deposits, according to the report. Higher interest rates will not hurt the value of these assets and may even enhance them.

As a whole, households here are financially strong, Mr Wan added, noting that their assets are nearly five times Singapore's annual economic output.

Liquid assets alone come up to 89 per cent of the economy - more than the entire sum of household liabilities, which add up to just 77 per cent of the economy.

Credit Suisse's findings - based on a survey of 300 Singapore residents with housing and income that mirror the population - dovetail with data from the Monetary Authority of Singapore (MAS) as well.

The financial regulator has said 5 to 10 per cent of Singapore borrowers are in danger of being overstretched but that most of these heavy borrowers have "above average" income levels.

The MAS added the proportion of "at-risk" borrowers may rise to 15 per cent if mortgage rates climb 3 percentage points - a scenario Mr Wan feels is "aggressive".

The three-month Singapore Interbank Offered Rate (Sibor), to which many mortgages are pegged, has averaged 1.5 per cent between 1999 and 2013, he noted.

However, this does not mean higher interest rates will do no harm at all. Some consumers may cut back on spending as their debt repayments rise, affecting the broader economy, said Mr Wan.

Anecdotal evidence also throws up another wrinkle. Almost half of the people polled in Credit Suisse's survey said they know of people who may have trouble meeting mortgage repayments, the report said.

The bank's findings come as economists are increasingly expecting that interest rates will stay low for longer.

Data on Tuesday showed the US added fewer jobs than expected in September, which means the Federal Reserve could keep its hefty stimulus programme in place until well into next year.

October's jobs tally will likely be affected by the US government shutdown, leaving the Fed with only one "decent" jobs report - November - at its December meeting, said ABN Amro economists Peter de Bruin and Nick Kounis.

"We think that this will not be enough to induce them to start scaling back their (stimulus) programmes, which is why we now expect the tapering to start in March," they said yesterday.

Goldman Sachs and JP Morgan economists also tip that the Fed may start withdrawing the stimulus only in March or April 2014.

fiochan@sph.com.sg

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