Speaker 1: Mhm
Speaker 1: Hello and welcome. I'm Jonathan Pierce from the money mine
Speaker 1: team here at C. N. A. And I'll be looking
Speaker 1: at the five things you need to know about rising
Speaker 1: mortgage rates in Singapore joining me now are Clive chung,
Speaker 1: Associate director at Red brick mortgage advisory and Christopher tan
Speaker 1: ceo of wealth advisory firm Providence gentlemen, welcome to the show.
Speaker 1: Great to be here. Thanks for having me Jonathan.
Speaker 1: So let's kick off the discussion with you Clive, could
Speaker 1: you tell us what benchmark rates are actually used in
Speaker 1: Singapore mortgages and by how much have they risen over
Speaker 1: the past months and how high can they still go?
Speaker 1: The benchmark rates that are primarily used in Singapore mortgages?
Speaker 1: Today it's Sora or the Singapore overnight rate average.
Speaker 1: It can be a one months or a or a
Speaker 1: three month sora.
Speaker 1: Prior to this, it was actually the benchmark called cyber
Speaker 1: the Singapore Interbank offered rate at the beginning of the
Speaker 1: year 2022 the one month Sora was sitting about 0.2% today,
Speaker 1: the one month Sora is sitting at 0.65%. So that's
Speaker 1: an increase of 45 basis points when you're looking at
Speaker 1: the three months or a It started at the beginning
Speaker 1: of the year at 0.19%.
Speaker 1: And currently the three months Alright is sitting at about
Speaker 1: 0.45
Speaker 1: chris what are your views on this? Have we reached
Speaker 1: a peak yet? In your opinion?
Speaker 2: I don't think so the general views is the interest
Speaker 2: rate will continue to rise and the primary reason we
Speaker 2: all know is mainly due to inflation. The US government
Speaker 2: is trying very hard right now to fight inflation and
Speaker 2: in the recent months, not only they have raised interest rate,
Speaker 2: the Fed funds rate,
Speaker 2: but they have also pledged that they will continue to
Speaker 2: do so
Speaker 2: Until price becomes stable and we're expecting the Fed funds
Speaker 2: rate to go up to about 2.5-2.75% by the end
Speaker 2: of the year. So I think consumers, whether people who
Speaker 2: are taking a housing loan or taking any sorts of
Speaker 2: loans have to expect that interest rate will continue to
Speaker 2: rise throughout the year.
Speaker 1: Are there any particular segments chris that will be most
Speaker 1: affected by rising mortgage rates?
Speaker 2: People who are taking a loan right now, especially if
Speaker 2: they are on a previous package and they are finishing
Speaker 2: up the lock up period if they're on a fixed
Speaker 2: loan and they need to consider reprising their loans or
Speaker 2: refinancing their loans. These are the people who, they will
Speaker 2: be most concerned because what that means is that going forward,
Speaker 2: they may have to pay a high interest
Speaker 2: and that means that they are going to expect a
Speaker 2: higher expense in the family. Of course, the people who
Speaker 2: are buying a house right now, I think it will
Speaker 2: affect them. This is the point in time whereby they
Speaker 2: have to think about whether I should go on fixed
Speaker 2: rate or whether I should go on floating. There are
Speaker 2: people who also will need to take a look at
Speaker 2: the size of the house that they can really afford,
Speaker 2: you cannot just depend on the current loan rate.
Speaker 2: People considering buying a house right now, they have to
Speaker 2: expect interest rates to go up higher than what it
Speaker 2: is right now and determine whether you can really afford
Speaker 2: buying that property
Speaker 1: now, Clive obviously, you know, homeowners and property investors have
Speaker 1: different priorities right now, but what is the biggest dilemma
Speaker 1: facing both these two segments,
Speaker 1: Like what Christopher mentioned, rising interest rates aren't the only
Speaker 1: deciding factor to whether to buy a property or not
Speaker 1: back in 2019, a three year fixed interest rate was
Speaker 1: as high as 2.68% and at one point it even
Speaker 1: moved up to 2.88% and we still saw the market
Speaker 1: picking up people still bought properties
Speaker 1: but of course when you're looking from an investment perspective
Speaker 1: with rising cost of funds, your financing becoming a little
Speaker 1: bit more expensive, of course that erodes into your potential returns,
Speaker 1: but in the long term I think people still buying
Speaker 1: two properties and hold the properties over the long run
Speaker 1: because it is a good hedge against inflation, especially right
Speaker 1: now when inflation is so high
Speaker 1: chris so obviously homeowners are being hit not just by
Speaker 1: mortgage increases, but also inflation, high petrol prices etcetera chris
Speaker 1: are there any strategies that homeowners can adopt, like should
Speaker 1: they actually consider refinancing or re pricing their loans? Now,
Speaker 2: the main culprit is really inflation. So like what Clive
Speaker 2: has said, if there is a reason why you want
Speaker 2: to buy into that property, whether it is for family
Speaker 2: is for you to stay and there are a really
Speaker 2: good reason why you want to buy that property
Speaker 2: or you feel that that is really a good investment
Speaker 2: and you have confidence that you just need to weather
Speaker 2: through that period and what that means is that you
Speaker 2: really need to cut down on some of your expenses
Speaker 2: right now, have to cope with the increasing rates and
Speaker 2: not just increasing interest rates, but also inflation, making things
Speaker 2: very expensive. You might want to look at cutting down
Speaker 2: the non essentials
Speaker 2: with governments, increasing interest rates. It might also mean that
Speaker 2: we might go into a recession,
Speaker 2: you may lose your job and what that means is
Speaker 2: that you really need to have enough emergency fund right?
Speaker 2: Not just in cash, but perhaps even in your ordinary
Speaker 2: account and you're going to take other kinds of loans
Speaker 2: to buy a big ticket item right now, maybe like
Speaker 2: a car, which is really not essential. I will caution
Speaker 2: that
Speaker 2: perhaps this is not the best time to take
Speaker 2: a big loan, especially buying the things that are not necessary. Now,
Speaker 2: better refinance or reprise Clive will have a better take
Speaker 2: on this
Speaker 1: When we're talking about mortgages in Singapore, the people who
Speaker 1: are immediately impacted at this point of time are people
Speaker 1: who refinanced a loan, for example, in 2019 or 2020
Speaker 1: and on a floating interest rate
Speaker 1: on cyborg
Speaker 1: because cyber and the past couple of months have increased
Speaker 1: quite drastically. So if you're coming out of your lock
Speaker 1: in period, you should definitely re look into the market
Speaker 1: to re price or refinance. Now, when it comes to
Speaker 1: re pricing and refinancing, there are some differences with the banks.
Speaker 1: If you're re pricing your loan, you might get the
Speaker 1: same interest rates that they're offering to their new to
Speaker 1: bank clients,
Speaker 1: but you might also get higher interest rates and there's
Speaker 1: also going to be a fee for reprising. So sometimes
Speaker 1: it might be even cheaper to do a refinancing because
Speaker 1: the banks will provide you with cash rebates, legal subsidies
Speaker 1: to offset the cost of refinancing and you get new
Speaker 1: to bank rates as well. Interest rates are always cyclical,
Speaker 1: Maybe in the short term stretching your loan tenure when
Speaker 1: you're doing a refinancing, that allows you a better cash
Speaker 1: flow
Speaker 1: Because stretching the loan 10or just means bringing your money
Speaker 1: installments down.
Speaker 1: Now, if I'm a homeowner and I want to extend
Speaker 1: my loan tenure, as you say, do I opt for
Speaker 1: fixed or floating rates in this current climate.
Speaker 1: Prior to this podcast, I was having a conversation with
Speaker 1: Christopher and we were talking about fixed interest rates potentially
Speaker 1: already moving up to the 2.45% mark for a two
Speaker 1: year fixed interest rate and a 2.6% for a three
Speaker 1: year fixed interest rates. Whereas when you look at the
Speaker 1: floating interest rate, you're sitting at about 1.151.2%.
Speaker 1: So the gap is significantly large, 1.3%, for example.
Speaker 1: So homeowners are in a dilemma. Should I go for
Speaker 1: fixed interest rates, pay 2.6% for a three year fixed
Speaker 1: interest rate where I can actually save more than 1%
Speaker 1: or should I just go for a floating interest rate
Speaker 1: at this point of time today there is gaining traction
Speaker 1: for people moving into the floating interest rate market and
Speaker 1: they are moving into packages that limit the exposure. So
Speaker 1: if you're on a one year lock in period on
Speaker 1: a floating interest rate at the end of one year,
Speaker 1: of course you have the ability to refinance to re price,
Speaker 1: stretch your loan tenure, you have the ability to partially
Speaker 1: prepare if you want to
Speaker 2: just want to offer my point of view in the
Speaker 2: past where by the gap between the fixed rates as
Speaker 2: well as the floating rates are very narrow,
Speaker 2: it is easy to make a decision and a lot
Speaker 2: of us will go just go into fixed rates because,
Speaker 2: well there is not much incentive going to floating rates
Speaker 2: since the gap,
Speaker 2: it's so narrow. But currently as what Clive has mentioned
Speaker 2: with the gap widening, it's very tempting to go into floating.
Speaker 2: Ultimately, it also depends on the risk tolerance of people
Speaker 2: who are taking a housing loan.
Speaker 2: If taking a fixed rate right now is going to
Speaker 2: give you peace of mind, then I would say go
Speaker 2: for the peace of mind, even though financially speaking, it
Speaker 2: may make sense to go for a floating rate. The
Speaker 2: whole purpose of money is to enable you to live
Speaker 2: the life you want and you want to be able
Speaker 2: to sleep peacefully at night. So sometimes what I call
Speaker 2: life decision is more important
Speaker 2: if it makes you sleep well, how
Speaker 1: do you put a price on peace of mind?
Speaker 2: Yeah, you can't, you can't,
Speaker 1: we're talking about the five things you need to know
Speaker 1: about rising mortgage rates here in Singapore, we've discussed how
Speaker 1: mortgage rates will keep increasing throughout the year as policymakers
Speaker 1: move to rein in inflation,
Speaker 1: Those who refinanced or bought their properties 2-3 years ago
Speaker 1: could be most impacted.
Speaker 1: And homeowners now face a dilemma as the gap between
Speaker 1: fixed and floating rates widens and lastly, one strategy they
Speaker 1: can explore is refinancing their loans and opting for longer
Speaker 1: tenure to bring monthly installments down. Now, moving on without discussion,
Speaker 1: Clive, what is your rule of thumb when evaluating property
Speaker 1: loan packages
Speaker 1: if you're purchasing a property, get a loan eligibility done
Speaker 1: to ensure that you're not overstretching yourself in terms of
Speaker 1: taking on a huge mortgage
Speaker 1: mortgages in Singapore are relatively straightforward. You're locked in for
Speaker 1: a couple of years or three years depending on the
Speaker 1: package that your going into. And within that period of
Speaker 1: time you have very little number of things you can do.
Speaker 1: You want to be able to search for packages in
Speaker 1: the market that offer you flexibility and there are packages
Speaker 1: in the market that allow you to make partial pre
Speaker 1: payments
Speaker 1: and also sell the property within the lock in period
Speaker 1: without any penalties at all.
Speaker 1: And if you're purchasing a property for example then you
Speaker 1: have to look at the different banks and the different
Speaker 1: credit policies at the end of the day, the banks
Speaker 1: will look at it case by case basis. They will
Speaker 1: always look at your credit history for the last 12 months.
Speaker 1: There are many things to consider in the market depending
Speaker 1: on your needs, depending on how old, you are depending
Speaker 1: on where you are in life,
Speaker 1: what's affordable, what's not affordable, how much cash you have
Speaker 1: on hand only then will you be able to make
Speaker 1: a decision on which mortgage package to go into
Speaker 1: chris this issue of homeowners being over leveraged in your opinion,
Speaker 1: are there mechanisms in place to prevent this? And is
Speaker 1: it enough? Right now,
Speaker 2: there are plenty of government measures to prevent someone from
Speaker 2: over borrowing, we have the loan to valuation ratio that's
Speaker 2: currently 75% for bank loans and 85% for HDB loan TDS.
Speaker 2: Our total debt service ratio, which currently is 55% of
Speaker 2: the monthly income, which means to say that a person,
Speaker 2: their total loan monthly payment
Speaker 2: Should not be more than 50% of the monthly income.
Speaker 2: The other one is a mortgage servicing ratio in my
Speaker 2: area of work. Generally we advise people not to cross 40%
Speaker 2: and even when you touch 40% we think that you
Speaker 2: are stretching yourself a bit even though you can afford 55,
Speaker 2: you might want to reconsider something, lower.
Speaker 2: especially for a time like this whereby
Speaker 2: it's pretty uncertain. We have never seen inflation rising up
Speaker 2: so fast in such a short period of time. Those
Speaker 2: are all indicators for possible recession. We might lose our
Speaker 2: jobs so just be very careful.
Speaker 1: But of course, you know, we have that old proverb
Speaker 1: right with every crisis could also be an opportunity. So
Speaker 1: let's end off today on a little bit positive note
Speaker 1: chris what are the risks and rewards of investing in
Speaker 1: property When interest rates are rising?
Speaker 2: When we invest into a property. We are looking at
Speaker 2: rental income as one some retirees like it because it
Speaker 2: gives them a steady stream of income. We are looking
Speaker 2: at capital appreciation of that property and that's provided of
Speaker 2: course you buy the correct ones at the correct location
Speaker 2: and the biggest return in the Singapore property scene really
Speaker 2: comes from the leverage
Speaker 2: because without the borrowing, if you look at the U.
Speaker 2: The rental you're the property is not that exciting.
Speaker 2: But once you leverage it then becomes very exciting. But
Speaker 2: Darren lies the risk as well and we are seeing
Speaker 2: it right now. Well if interest rates continue to go
Speaker 2: up and in the past, if you have bought that
Speaker 2: property and you stretch it to the maximum you might
Speaker 2: be in trouble, especially if you lose your job. And
Speaker 2: we know that
Speaker 2: we don't exactly have liquidity when it comes to property,
Speaker 2: it takes time to sell six months, nine months before
Speaker 2: the whole transaction is over. There is the risk of
Speaker 2: endless government cooling measures, you know, and when they have
Speaker 2: those cooling measures they don't tell you in advance. So
Speaker 2: these are the risks and rewards. But allow me to
Speaker 2: end with this firstly, I'm not saying no for property
Speaker 2: it's
Speaker 2: a good asset, especially in an inflation environment is a
Speaker 2: hard asset which well typically it does well in an
Speaker 2: inflationary environment but
Speaker 2: please make sure that your financial health is good before
Speaker 2: you go into long term investing. That's one. The other
Speaker 2: thing is when it comes to buying property for a
Speaker 2: lot of people, it may mean a large part of
Speaker 2: your asset allocation
Speaker 2: after you buy the property, you may not have other
Speaker 2: resources left to invest in other things. So there's not
Speaker 2: enough diversification there. And if that property fails you then
Speaker 2: your overall investment portfolio may not do very well because
Speaker 2: you're over concentrated into a very big asset. So diversify
Speaker 2: and be very careful when you buy, don't over leverage yourself.
Speaker 2: That's my key message.
Speaker 1: Apply final thoughts with and rewards generally properties are safe
Speaker 1: havens in Singapore. Like what chris mentioned, the rate that
Speaker 1: property has grown is faster than inflation. It's really time
Speaker 1: in the market rather than trying to time the market right?
Speaker 1: So buying a property and being in the property for
Speaker 1: a longer run generally gives you a decent return.
Speaker 1: Have a diversified portfolio. Don't try to time the market
Speaker 1: not be too overly concerned about interest rates at this
Speaker 1: point of time because they move up, they move down
Speaker 1: on average in Singapore itself, interest rates are still considered
Speaker 1: quite low. If you compare it to the rest of
Speaker 1: the world.
Speaker 1: Clive and chris thank you very much.
Speaker 2: Thank you very much. Thanks for having me.
Speaker 1: You're most welcome. Thanks for having us, Jonathan, appreciate your
Speaker 1: time now to recap mortgage rates in Singapore have not
Speaker 1: peaked and will keep rising throughout the year. As policymakers
Speaker 1: move to rein in inflation.
Speaker 1: Those who refinanced or bought their properties 2-3 years ago
Speaker 1: could be most impacted by rising mortgage rates
Speaker 1: and homeowners now face a dilemma as the gap between
Speaker 1: fixed and floating rates widens.
Speaker 1: Homeowners can opt to refinance their loans and go for
Speaker 1: longer tenure to bring monthly installments down.
Speaker 1: While mechanisms are in place to prevent over leverage, homeowners
Speaker 1: should not overstretch themselves when choosing a loan package and finally,
Speaker 1: property remains a safe haven investment. But it pays to
Speaker 1: be aware of the risks and rewards and to stay diversified.
Speaker 1: And those are the five things you need to know
Speaker 1: about rising mortgage rates in Singapore. Thanks for listening money
Speaker 1: miners every saturday at 10 30 PM on media cops
Speaker 1: C N A. You can also catch us online at
Speaker 1: CNN dot asia or on youtube.