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 nation that already ranks among the world’s most expensive places to live.
The three-month Singapore interbank offered rate (SIBOR), which is used to set floating-rate mortgages, climbed to 0.78756 percent yesterday. It has gained 33 basis points so far this year, exceeding all the annual increases since 2005.
Analysts expect the rate to end this year at about 1 percent. The surge has been fueled by the Singapore dollar’s weakness against the US dollar.
Exacerbating the Singapore dollar’s fall and boosting SIBOR, the Monetary Authority of Singapore in late January allowed the currency to appreciate at a slower pace.
Most economists polled by Reuters expect the central bank to further ease policy next month. Analysts say three-month SIBOR might stabilize as the Singapore dollar adjusts to the policy shifts. Mortgage borrowers would probably feel more impact from the rising SIBOR in the second half, as interest rates on mortgages tend to be set every three months, Credit Suisse economist Michael Wan (溫鎮全) said.
DOUBLE TROUBLE
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.
SECOND-HALF IMPACT
The impact on discretionary spending by households is likely to be more evident in the second half, Wan said.
The outstanding amount of household mortgages rose nearly 37 percent to S$216.7 billion (US$158.41 billion) at the end of last year from 2010 in a period of near zero interest rates. A typical floating-rate loan for a government-built apartment is worth about S$300,000 with a tenure of around 25 years.
If the loan was taken at the start of last year, the interest rate would have hovered near 1.3 percent through the year, with three-month SIBOR about 0.4 percent.
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