Overstretched borrowers unlikely to default: Minister

SINGAPORE - Singaporean households are in sound financial health and even home owners who seem overstretched on mortgages are not likely to default if interest payments rise.

That was the reassuring verdict on Monday from Mr Lawrence Wong, a director on the board of the Monetary Authority of Singapore (MAS).

Mr Wong, who is also Acting Minister for Culture, Community and Youth, told Parliament that Singaporeans are not in as much debt now as they were in the last decade.

He was replying to Nominated MP Laurence Lien and Non-Constituency MP Yee Jenn Jong.

Mr Wong, speaking on behalf of Deputy Prime Minister and MAS chairman Tharman Shanmugaratnam, noted a point made by Mr Tharman last month that 5 to 10 per cent of mortgage holders may have overstretched themselves, given that their monthly debt repayments amount to more than 60 per cent of their income.

A rise in interest rates will cause this group of borrowers some difficulty, but this does not necessarily mean they will default, Mr Wong said, who noted that most of them are better off than the average household and servicing only one property loan.

"If you look more closely at the profile of these borrowers, they are not necessarily in the vulnerable category. The bulk of them have above-average household income levels," he added.

"More than 90 per cent (of them) are servicing private property loans and more than 80 per cent of them are servicing one (property) loan, not multiple loans so (their properties) are owner- occupied."

So while this group of borrowers may have a relatively high debt service burden, they also have a larger buffer in terms of incomes and assets and they would be at a lower risk of default, Mr Wong said.

He also noted that there is really no precise measurement of over-leverage, and that looking at a household's debt service burden is just a "rough guide".

Overall, households are in good financial shape, he added. Even excluding the value of property assets, the cash and deposits owned by households exceed household debt in aggregate.

The household debt-to-income ratio has fallen from its peak. This ratio was estimated to be 2.1 times last year - "significantly lower" than in the middle of the last decade when it peaked at 2.6 times, Mr Wong noted.

Still, he said the Government has taken some proactive measures to curb household debt, as it has to prevent a situation in which cheap credit drives property prices beyond levels that can be sustained by underlying income growth.

 

yasminey@sph.com.sg

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