MORTGAGE INTEREST RATE (Impact of increases on households)

Mr Low Thia Khiang asked the Minister for National Development (a) whether his Ministry has assessed the impact of the current increases in mortgage interest rate on households, especially those who have taken 25 years' loan and who still have substantial loan repayable to the Housing and Development Board; and (b) what is the maximum additional amount mortgagors will have to pay each month, based on the new basis of instalment computation after the interest rate increases.

Mr Matthias Yao Chih (for the Minister for National Development): Mr Speaker, Sir, HDB finances its mortgage loans with funds from the Government, part of which comes from the Central Provident Fund. HDB's mortgage loan interest rate is thus pegged at 0.1 percentage point above the CPF interest rate. Therefore, when the CPF Board raised its interest rate to 3.82% per annum, the HDB mortgage loan rate was also raised accordingly from 3.2% to 3.92% from 1st July 1995.

If HDB purchasers want fixed interest rates, then all CPF accounts will have to be paid fixed interest rates. This will not be fair or welcomed by CPF depositors.

The fluctuations in HDB mortgage loan interest rate is no different from the fluctuating interest rates charged by the commercial banks. Notwithstanding the latest increase, the HDB mortgage loan interest rate is still well below the market interest rate charged by the commercial banks, which averages above 6%.

The quantum of increase in the instalment payments will vary depending on the outstanding loan balance and the balance of the repayment period. For example, a mortgagor with a housing loan of $100,000 repayable over 25 years will pay an additional monthly instalment of $40. About 75% of those who have taken a mortgage loan with 25-year repayment period will pay an increase of between $1 and $40 per month more; while not more than 10% will have to pay more than $60 extra.

For mortgagors who are in genuine financial hardship, HDB will consider each case on its own merits and adopt measures to assist them if they are in genuine hardship.

Mr Low Thia Khiang: Sir, are there mortgagors who have to pay more than $100 per month with this new increase?

Mr Matthias Yao Chih: Sir, I do not know that. I presume there may be if the quantum of the loan is large enough and the repayment period is short enough.

Mr Low Thia Khiang: Sir, given the circumstances, if the mortgage interest rate should increase further, would it affect the affordability of Singaporeans in owning HDB flats or upgrading to bigger flats?

Secondly, what is the rationale of HDB using the new basis of instalment computation, which I think is more sensitive towards the increase in the mortgage interest rate?

Mr Matthias Yao Chih: Sir, on the Member's first question, the mortgage loan terms are already very generous compared to the private sector. The housing loan rates are between 6% and 7% in the open market. HDB is only charging 3.9%.

Mr Low Thia Khiang: Would it be affordable?

Mr Matthias Yao Chih: Certainly, it is affordable. The loan terms are very generous. Repayment terms are also very generous. They will still remain affordable. In fact, today's interest rates are lower than the rates of a few years ago.

On his second question regarding the basis of computation, it is calculated this way. The Government borrows money from CPF account holders at a certain percentage rate and this rate is the one on which HDB loans are calculated. When the CPF account holders are paid X%, then this money is borrowed by the Government and lent to HDB flat buyers and the HDB flat buyers are charged X.1%. This is the basis.

Mr Low Thia Khiang: Sir, I am asking about the new basis of instalment computation, which is based on the balance of the mortgage loan or the balance of repayment years. The old basis was based on something else.

Mr Matthias Yao Chih: That is right. That is the basis.

Mr Low Thia Khiang: Why is the HDB using this new basis? There is a new basis of computation.

Mr Matthias Yao Chih: Because this is a fair basis. Whatever amount they still owe and for whatever period, they are charged interest for that.

Mr Speaker: Order. End of Question time.

[Pursuant to Standing Order No. 21(3), Question No. 16 has been postponed to the next sitting of Parliament. Written Answers to Question Nos. 17 and 18 on the Order Paper are produced in the section, 'Oral Answers to Questions Not Reached' (Cols. 1397 - 1398).]