WEBVTT - 5 Things you need to know about rising mortgage rates | EP 4

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<v Speaker 1>Mhm

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<v Speaker 1>Hello and welcome. I'm Jonathan Pierce from the money mine

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<v Speaker 1>team here at C. N. A. And I'll be looking

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<v Speaker 1>at the five things you need to know about rising

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<v Speaker 1>mortgage rates in Singapore joining me now are Clive chung,

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<v Speaker 1>Associate director at Red brick mortgage advisory and Christopher tan

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<v Speaker 1>ceo of wealth advisory firm Providence gentlemen, welcome to the show.

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<v Speaker 1>Great to be here. Thanks for having me Jonathan.

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<v Speaker 1>So let's kick off the discussion with you Clive, could

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<v Speaker 1>you tell us what benchmark rates are actually used in

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<v Speaker 1>Singapore mortgages and by how much have they risen over

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<v Speaker 1>the past months and how high can they still go?

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<v Speaker 1>The benchmark rates that are primarily used in Singapore mortgages?

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<v Speaker 1>Today it's Sora or the Singapore overnight rate average.

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<v Speaker 1>It can be a one months or a or a

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<v Speaker 1>three month sora.

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<v Speaker 1>Prior to this, it was actually the benchmark called cyber

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<v Speaker 1>the Singapore Interbank offered rate at the beginning of the

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<v Speaker 1>year 2022 the one month Sora was sitting about 0.2% today,

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<v Speaker 1>the one month Sora is sitting at 0.65%. So that's

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<v Speaker 1>an increase of 45 basis points when you're looking at

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<v Speaker 1>the three months or a It started at the beginning

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<v Speaker 1>of the year at 0.19%.

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<v Speaker 1>And currently the three months Alright is sitting at about

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<v Speaker 1>0.45

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<v Speaker 1>chris what are your views on this? Have we reached

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<v Speaker 1>a peak yet? In your opinion?

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<v Speaker 2>I don't think so the general views is the interest

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<v Speaker 2>rate will continue to rise and the primary reason we

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<v Speaker 2>all know is mainly due to inflation. The US government

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<v Speaker 2>is trying very hard right now to fight inflation and

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<v Speaker 2>in the recent months, not only they have raised interest rate,

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<v Speaker 2>the Fed funds rate,

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<v Speaker 2>but they have also pledged that they will continue to

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<v Speaker 2>do so

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<v Speaker 2>Until price becomes stable and we're expecting the Fed funds

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<v Speaker 2>rate to go up to about 2.5-2.75% by the end

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<v Speaker 2>of the year. So I think consumers, whether people who

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<v Speaker 2>are taking a housing loan or taking any sorts of

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<v Speaker 2>loans have to expect that interest rate will continue to

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<v Speaker 2>rise throughout the year.

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<v Speaker 1>Are there any particular segments chris that will be most

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<v Speaker 1>affected by rising mortgage rates?

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<v Speaker 2>People who are taking a loan right now, especially if

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<v Speaker 2>they are on a previous package and they are finishing

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<v Speaker 2>up the lock up period if they're on a fixed

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<v Speaker 2>loan and they need to consider reprising their loans or

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<v Speaker 2>refinancing their loans. These are the people who, they will

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<v Speaker 2>be most concerned because what that means is that going forward,

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<v Speaker 2>they may have to pay a high interest

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<v Speaker 2>and that means that they are going to expect a

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<v Speaker 2>higher expense in the family. Of course, the people who

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<v Speaker 2>are buying a house right now, I think it will

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<v Speaker 2>affect them. This is the point in time whereby they

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<v Speaker 2>have to think about whether I should go on fixed

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<v Speaker 2>rate or whether I should go on floating. There are

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<v Speaker 2>people who also will need to take a look at

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<v Speaker 2>the size of the house that they can really afford,

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<v Speaker 2>you cannot just depend on the current loan rate.

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<v Speaker 2>People considering buying a house right now, they have to

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<v Speaker 2>expect interest rates to go up higher than what it

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<v Speaker 2>is right now and determine whether you can really afford

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<v Speaker 2>buying that property

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<v Speaker 1>now, Clive obviously, you know, homeowners and property investors have

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<v Speaker 1>different priorities right now, but what is the biggest dilemma

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<v Speaker 1>facing both these two segments,

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<v Speaker 1>Like what Christopher mentioned, rising interest rates aren't the only

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<v Speaker 1>deciding factor to whether to buy a property or not

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<v Speaker 1>back in 2019, a three year fixed interest rate was

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<v Speaker 1>as high as 2.68% and at one point it even

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<v Speaker 1>moved up to 2.88% and we still saw the market

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<v Speaker 1>picking up people still bought properties

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<v Speaker 1>but of course when you're looking from an investment perspective

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<v Speaker 1>with rising cost of funds, your financing becoming a little

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<v Speaker 1>bit more expensive, of course that erodes into your potential returns,

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<v Speaker 1>but in the long term I think people still buying

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<v Speaker 1>two properties and hold the properties over the long run

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<v Speaker 1>because it is a good hedge against inflation, especially right

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<v Speaker 1>now when inflation is so high

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<v Speaker 1>chris so obviously homeowners are being hit not just by

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<v Speaker 1>mortgage increases, but also inflation, high petrol prices etcetera chris

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<v Speaker 1>are there any strategies that homeowners can adopt, like should

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<v Speaker 1>they actually consider refinancing or re pricing their loans? Now,

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<v Speaker 2>the main culprit is really inflation. So like what Clive

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<v Speaker 2>has said, if there is a reason why you want

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<v Speaker 2>to buy into that property, whether it is for family

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<v Speaker 2>is for you to stay and there are a really

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<v Speaker 2>good reason why you want to buy that property

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<v Speaker 2>or you feel that that is really a good investment

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<v Speaker 2>and you have confidence that you just need to weather

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<v Speaker 2>through that period and what that means is that you

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<v Speaker 2>really need to cut down on some of your expenses

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<v Speaker 2>right now, have to cope with the increasing rates and

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<v Speaker 2>not just increasing interest rates, but also inflation, making things

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<v Speaker 2>very expensive. You might want to look at cutting down

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<v Speaker 2>the non essentials

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<v Speaker 2>with governments, increasing interest rates. It might also mean that

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<v Speaker 2>we might go into a recession,

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<v Speaker 2>you may lose your job and what that means is

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<v Speaker 2>that you really need to have enough emergency fund right?

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<v Speaker 2>Not just in cash, but perhaps even in your ordinary

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<v Speaker 2>account and you're going to take other kinds of loans

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<v Speaker 2>to buy a big ticket item right now, maybe like

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<v Speaker 2>a car, which is really not essential. I will caution

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<v Speaker 2>that

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<v Speaker 2>perhaps this is not the best time to take

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<v Speaker 2>a big loan, especially buying the things that are not necessary. Now,

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<v Speaker 2>better refinance or reprise Clive will have a better take

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<v Speaker 2>on this

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<v Speaker 1>When we're talking about mortgages in Singapore, the people who

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<v Speaker 1>are immediately impacted at this point of time are people

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<v Speaker 1>who refinanced a loan, for example, in 2019 or 2020

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<v Speaker 1>and on a floating interest rate

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<v Speaker 1>on cyborg

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<v Speaker 1>because cyber and the past couple of months have increased

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<v Speaker 1>quite drastically. So if you're coming out of your lock

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<v Speaker 1>in period, you should definitely re look into the market

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<v Speaker 1>to re price or refinance. Now, when it comes to

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<v Speaker 1>re pricing and refinancing, there are some differences with the banks.

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<v Speaker 1>If you're re pricing your loan, you might get the

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<v Speaker 1>same interest rates that they're offering to their new to

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<v Speaker 1>bank clients,

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<v Speaker 1>but you might also get higher interest rates and there's

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<v Speaker 1>also going to be a fee for reprising. So sometimes

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<v Speaker 1>it might be even cheaper to do a refinancing because

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<v Speaker 1>the banks will provide you with cash rebates, legal subsidies

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<v Speaker 1>to offset the cost of refinancing and you get new

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<v Speaker 1>to bank rates as well. Interest rates are always cyclical,

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<v Speaker 1>Maybe in the short term stretching your loan tenure when

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<v Speaker 1>you're doing a refinancing, that allows you a better cash

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<v Speaker 1>flow

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<v Speaker 1>Because stretching the loan 10or just means bringing your money

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<v Speaker 1>installments down.

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<v Speaker 1>Now, if I'm a homeowner and I want to extend

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<v Speaker 1>my loan tenure, as you say, do I opt for

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<v Speaker 1>fixed or floating rates in this current climate.

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<v Speaker 1>Prior to this podcast, I was having a conversation with

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<v Speaker 1>Christopher and we were talking about fixed interest rates potentially

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<v Speaker 1>already moving up to the 2.45% mark for a two

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<v Speaker 1>year fixed interest rate and a 2.6% for a three

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<v Speaker 1>year fixed interest rates. Whereas when you look at the

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<v Speaker 1>floating interest rate, you're sitting at about 1.151.2%.

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<v Speaker 1>So the gap is significantly large, 1.3%, for example.

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<v Speaker 1>So homeowners are in a dilemma. Should I go for

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<v Speaker 1>fixed interest rates, pay 2.6% for a three year fixed

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<v Speaker 1>interest rate where I can actually save more than 1%

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<v Speaker 1>or should I just go for a floating interest rate

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<v Speaker 1>at this point of time today there is gaining traction

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<v Speaker 1>for people moving into the floating interest rate market and

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<v Speaker 1>they are moving into packages that limit the exposure. So

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<v Speaker 1>if you're on a one year lock in period on

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<v Speaker 1>a floating interest rate at the end of one year,

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<v Speaker 1>of course you have the ability to refinance to re price,

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<v Speaker 1>stretch your loan tenure, you have the ability to partially

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<v Speaker 1>prepare if you want to

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<v Speaker 2>just want to offer my point of view in the

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<v Speaker 2>past where by the gap between the fixed rates as

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<v Speaker 2>well as the floating rates are very narrow,

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<v Speaker 2>it is easy to make a decision and a lot

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<v Speaker 2>of us will go just go into fixed rates because,

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<v Speaker 2>well there is not much incentive going to floating rates

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<v Speaker 2>since the gap,

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<v Speaker 2>it's so narrow. But currently as what Clive has mentioned

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<v Speaker 2>with the gap widening, it's very tempting to go into floating.

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<v Speaker 2>Ultimately, it also depends on the risk tolerance of people

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<v Speaker 2>who are taking a housing loan.

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<v Speaker 2>If taking a fixed rate right now is going to

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<v Speaker 2>give you peace of mind, then I would say go

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<v Speaker 2>for the peace of mind, even though financially speaking, it

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<v Speaker 2>may make sense to go for a floating rate. The

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<v Speaker 2>whole purpose of money is to enable you to live

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<v Speaker 2>the life you want and you want to be able

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<v Speaker 2>to sleep peacefully at night. So sometimes what I call

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<v Speaker 2>life decision is more important

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<v Speaker 2>if it makes you sleep well, how

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<v Speaker 1>do you put a price on peace of mind?

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<v Speaker 2>Yeah, you can't, you can't,

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<v Speaker 1>we're talking about the five things you need to know

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<v Speaker 1>about rising mortgage rates here in Singapore, we've discussed how

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<v Speaker 1>mortgage rates will keep increasing throughout the year as policymakers

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<v Speaker 1>move to rein in inflation,

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<v Speaker 1>Those who refinanced or bought their properties 2-3 years ago

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<v Speaker 1>could be most impacted.

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<v Speaker 1>And homeowners now face a dilemma as the gap between

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<v Speaker 1>fixed and floating rates widens and lastly, one strategy they

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<v Speaker 1>can explore is refinancing their loans and opting for longer

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<v Speaker 1>tenure to bring monthly installments down. Now, moving on without discussion,

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<v Speaker 1>Clive, what is your rule of thumb when evaluating property

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<v Speaker 1>loan packages

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<v Speaker 1>if you're purchasing a property, get a loan eligibility done

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<v Speaker 1>to ensure that you're not overstretching yourself in terms of

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<v Speaker 1>taking on a huge mortgage

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<v Speaker 1>mortgages in Singapore are relatively straightforward. You're locked in for

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<v Speaker 1>a couple of years or three years depending on the

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<v Speaker 1>package that your going into. And within that period of

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<v Speaker 1>time you have very little number of things you can do.

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<v Speaker 1>You want to be able to search for packages in

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<v Speaker 1>the market that offer you flexibility and there are packages

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<v Speaker 1>in the market that allow you to make partial pre

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<v Speaker 1>payments

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<v Speaker 1>and also sell the property within the lock in period

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<v Speaker 1>without any penalties at all.

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<v Speaker 1>And if you're purchasing a property for example then you

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<v Speaker 1>have to look at the different banks and the different

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<v Speaker 1>credit policies at the end of the day, the banks

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<v Speaker 1>will look at it case by case basis. They will

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<v Speaker 1>always look at your credit history for the last 12 months.

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<v Speaker 1>There are many things to consider in the market depending

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<v Speaker 1>on your needs, depending on how old, you are depending

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<v Speaker 1>on where you are in life,

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<v Speaker 1>what's affordable, what's not affordable, how much cash you have

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<v Speaker 1>on hand only then will you be able to make

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<v Speaker 1>a decision on which mortgage package to go into

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<v Speaker 1>chris this issue of homeowners being over leveraged in your opinion,

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<v Speaker 1>are there mechanisms in place to prevent this? And is

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<v Speaker 1>it enough? Right now,

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<v Speaker 2>there are plenty of government measures to prevent someone from

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<v Speaker 2>over borrowing, we have the loan to valuation ratio that's

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<v Speaker 2>currently 75% for bank loans and 85% for HDB loan TDS.

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<v Speaker 2>Our total debt service ratio, which currently is 55% of

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<v Speaker 2>the monthly income, which means to say that a person,

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<v Speaker 2>their total loan monthly payment

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<v Speaker 2>Should not be more than 50% of the monthly income.

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<v Speaker 2>The other one is a mortgage servicing ratio in my

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<v Speaker 2>area of work. Generally we advise people not to cross 40%

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<v Speaker 2>and even when you touch 40% we think that you

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<v Speaker 2>are stretching yourself a bit even though you can afford 55,

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<v Speaker 2>you might want to reconsider something, lower.

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<v Speaker 2>especially for a time like this whereby

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<v Speaker 2>it's pretty uncertain. We have never seen inflation rising up

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<v Speaker 2>so fast in such a short period of time. Those

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<v Speaker 2>are all indicators for possible recession. We might lose our

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<v Speaker 2>jobs so just be very careful.

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<v Speaker 1>But of course, you know, we have that old proverb

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<v Speaker 1>right with every crisis could also be an opportunity. So

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<v Speaker 1>let's end off today on a little bit positive note

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<v Speaker 1>chris what are the risks and rewards of investing in

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<v Speaker 1>property When interest rates are rising?

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<v Speaker 2>When we invest into a property. We are looking at

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<v Speaker 2>rental income as one some retirees like it because it

0:10:52.240 --> 0:10:54.930
<v Speaker 2>gives them a steady stream of income. We are looking

0:10:54.929 --> 0:10:58.209
<v Speaker 2>at capital appreciation of that property and that's provided of

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<v Speaker 2>course you buy the correct ones at the correct location

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<v Speaker 2>and the biggest return in the Singapore property scene really

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<v Speaker 2>comes from the leverage

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<v Speaker 2>because without the borrowing, if you look at the U.

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<v Speaker 2>The rental you're the property is not that exciting.

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<v Speaker 2>But once you leverage it then becomes very exciting. But

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<v Speaker 2>Darren lies the risk as well and we are seeing

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<v Speaker 2>it right now. Well if interest rates continue to go

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<v Speaker 2>up and in the past, if you have bought that

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<v Speaker 2>property and you stretch it to the maximum you might

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<v Speaker 2>be in trouble, especially if you lose your job. And

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<v Speaker 2>we know that

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<v Speaker 2>we don't exactly have liquidity when it comes to property,

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<v Speaker 2>it takes time to sell six months, nine months before

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<v Speaker 2>the whole transaction is over. There is the risk of

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<v Speaker 2>endless government cooling measures, you know, and when they have

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<v Speaker 2>those cooling measures they don't tell you in advance. So

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<v Speaker 2>these are the risks and rewards. But allow me to

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<v Speaker 2>end with this firstly, I'm not saying no for property

0:11:50.940 --> 0:11:51.550
<v Speaker 2>it's

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<v Speaker 2>a good asset, especially in an inflation environment is a

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<v Speaker 2>hard asset which well typically it does well in an

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<v Speaker 2>inflationary environment but

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<v Speaker 2>please make sure that your financial health is good before

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<v Speaker 2>you go into long term investing. That's one. The other

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<v Speaker 2>thing is when it comes to buying property for a

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<v Speaker 2>lot of people, it may mean a large part of

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<v Speaker 2>your asset allocation

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<v Speaker 2>after you buy the property, you may not have other

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<v Speaker 2>resources left to invest in other things. So there's not

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<v Speaker 2>enough diversification there. And if that property fails you then

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<v Speaker 2>your overall investment portfolio may not do very well because

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<v Speaker 2>you're over concentrated into a very big asset. So diversify

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<v Speaker 2>and be very careful when you buy, don't over leverage yourself.

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<v Speaker 2>That's my key message.

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<v Speaker 1>Apply final thoughts with and rewards generally properties are safe

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<v Speaker 1>havens in Singapore. Like what chris mentioned, the rate that

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<v Speaker 1>property has grown is faster than inflation. It's really time

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<v Speaker 1>in the market rather than trying to time the market right?

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<v Speaker 1>So buying a property and being in the property for

0:12:55.059 --> 0:12:58.860
<v Speaker 1>a longer run generally gives you a decent return.

0:12:58.940 --> 0:13:02.230
<v Speaker 1>Have a diversified portfolio. Don't try to time the market

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<v Speaker 1>not be too overly concerned about interest rates at this

0:13:05.090 --> 0:13:07.000
<v Speaker 1>point of time because they move up, they move down

0:13:07.010 --> 0:13:10.579
<v Speaker 1>on average in Singapore itself, interest rates are still considered

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<v Speaker 1>quite low. If you compare it to the rest of

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<v Speaker 1>the world.

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<v Speaker 1>Clive and chris thank you very much.

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<v Speaker 2>Thank you very much. Thanks for having me.

0:13:17.790 --> 0:13:20.350
<v Speaker 1>You're most welcome. Thanks for having us, Jonathan, appreciate your

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<v Speaker 1>time now to recap mortgage rates in Singapore have not

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<v Speaker 1>peaked and will keep rising throughout the year. As policymakers

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<v Speaker 1>move to rein in inflation.

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<v Speaker 1>Those who refinanced or bought their properties 2-3 years ago

0:13:33.140 --> 0:13:35.760
<v Speaker 1>could be most impacted by rising mortgage rates

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<v Speaker 1>and homeowners now face a dilemma as the gap between

0:13:38.840 --> 0:13:41.060
<v Speaker 1>fixed and floating rates widens.

0:13:41.740 --> 0:13:44.760
<v Speaker 1>Homeowners can opt to refinance their loans and go for

0:13:44.760 --> 0:13:47.560
<v Speaker 1>longer tenure to bring monthly installments down.

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<v Speaker 1>While mechanisms are in place to prevent over leverage, homeowners

0:13:52.370 --> 0:13:56.939
<v Speaker 1>should not overstretch themselves when choosing a loan package and finally,

0:13:56.950 --> 0:14:00.470
<v Speaker 1>property remains a safe haven investment. But it pays to

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<v Speaker 1>be aware of the risks and rewards and to stay diversified.

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<v Speaker 1>And those are the five things you need to know

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<v Speaker 1>about rising mortgage rates in Singapore. Thanks for listening money

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<v Speaker 1>miners every saturday at 10 30 PM on media cops

0:14:13.910 --> 0:14:16.610
<v Speaker 1>C N A. You can also catch us online at

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<v Speaker 1>CNN dot asia or on youtube.