Impact of Higher Interest Rates on Residential and Commercial Mortgagee Listings, and on Bankruptcy Applications

Mr Saktiandi Supaat asked the Prime Minister (a) whether the Government is anticipating a further rise in bankruptcy applications in 2023; and (b) whether residential and commercial mortgagee listings are at risk of rising further amid higher interest rates and a tougher business climate.

The Minister of State for Culture, Community and Youth and Trade and Industry (Mr Alvin Tan) (for the Prime Minister): Madam, the number of bankruptcy applications filed by individuals was 959 in the first quarter of 2023. This is slightly higher than the average quarterly bankruptcy applications of 912 in 2022.

Bankruptcy applications could pick up further as a small segment of more vulnerable borrowers face higher risks of financial distress amid higher interest rates and slower economic growth.

The Member also asked about mortgagee-listings. There has not been a pick-up in property-related foreclosures thus far. Five commercial and five residential loans were foreclosed by financial institutions (FIs) in the first quarter of 2023, compared to an average of four commercial and 12 residential foreclosures per quarter in 2022.

Mdm Deputy Speaker: Mr Saktiandi Supaat.

Mr Saktiandi Supaat (Bishan-Toa Payoh): Thank you, Mdm Deputy Speaker. I have two supplementary questions. The first is in relation to what the Minister of State replied earlier in terms of the data. I refer to the Ministry of Law (MinLaw)'s data recently, which highlighted the number of mortgagee listings jumped in the first quarter of 2023, with more distress sales expected in the second half of the year as bankruptcy applications increased – I think this from a Business Times article in relation to the MinLaw data. That was the first supplementary question in relation to what the Minister of State had shared. Can the Minister of State reconcile that MinLaw data for the first quarter?

The second is in relation to my concern about the high interest rates and increase in the mortgagee-listing statistics. I am seeing some residents coming up to me to seek help with financial institutions (FIs) in regard to their mortgages. I think MAS just replied to me yesterday on my written Parliamentary Question that 27,000 home owners have refinanced in the past 12 months and also indicated that MAS estimates and increase in mortgage payments for these home borrowers was around $240 on average. For some households, a $240 on average increase in mortgage payments can be quite substantial. Can Minister of State share whether there is any further updates on the household debt situation in Singapore at current situation and also going forward as well?

Second is in relation to my concern about the high interest rates and increase in these mortgagee listings statistics. I am seeing some residents coming up to me to seek help with FIs in regard to their mortgages. The Monetary Authority of Singapore (MAS) just reply to me yesterday on my written Parliamentary Question that 27,000 homeowners have refinanced in the past 12 months and also indicated that MAS estimates that increase in mortgage payments for these home borrowers was around $240 dollars on average. For some households, $240 on average increase in mortgage payments can be quite substantial. Can the Minister of State share whether there are any further updates on household debt situation in Singapore at current situation and also going forward as well.

Mr Alvin Tan: I thank the Member for his two supplementary questions. Maybe I will go for the household debt situation first in reference to the written Parliamentary Question that MAS answered yesterday.

First is that, naturally households with outstanding mortgages will see a higher borrowing costs as higher interest rates or interest rates rise from the exceptionally low levels in the past decade, so they will face the impact of a rise at different points of time depending on the types of loan packages that they have taken up.

As of the first quarter of 2023, about 38% of mortgages extended for private residential property purchases by financial institutions were on floating rate packages that move in tandem with market interest rates, while the remaining 62% were either on rates linked to board rates or fixed deposit rates, which track market interest rates, but with some lag or it could be fixed interest rates over the first few years of their loans.

With regards to the written Parliamentary Question yesterday, the $240 on average, accounts for about 2% of their monthly income and the average monthly income of the 27,000 homeowners who refinanced their loans had increased by about 10%. So, 2% for increase in mortgage payments versus a 10% increase of monthly income over the last three years. While we understand and we empathise that there are raises in how much mortgage layouts there are, this comparison between 10% increase in money income as well as 2% increase in mortgage would have helped cushion increase in mortgage payments.

The other point here is also, maybe to give the Members some more detail on borrowers who refinanced between August 2022 and February 2023, a little bit more updated information. They would have of course face a larger mortgage payment increase given the sharper increases in interest rates during that period. An example of an upper bound that I can share with the Member, borrowers whose loans were incepted or at least last refinanced in February 2020 at the interest rate of about 1.8%, face an average increase in monthly payment of about $730 or about 6% as a share of monthly income after refinancing in February 2023 at an interest rate about 3.9%. Again, if you take it or as a whole, the average increase in monthly income or those who had refinance in the past 12 months was about 10% over the last three years. Again, it would have, to some degree helped to cushion the increase in their mortgage payments. MAS estimated that the income increase over three years because most of its borrowers had secured a new loan or refinance that existing loan three years ago.

Let me now refer to the second, sorry, the first Parliamentary Question which is on mortgagee listings, which the Member had raised. Now the use of mortgagee listings as an indicator of households and businesses in distress may be limited. The extent of distressed sales could be or likely be overstated in part due to double counting.

We are not privy to the auction houses' methodologies, but there are challenges in tracking such listings as there is no central database. For example, a property that is put up for sale may count as several listings at the bank or the owner listing it with multiple agencies.

The Member mentioned the recent media report last month that suggested that there is a spike in distressed property listings in its headline. This sharp increase referred to a quarter-on-quarter change from Q4 of 2022, which may reflect a low-based effect from the muted market activity in the year-end period. I just wanted to give the Member that context on mortgage listings.

That said, may I take this opportunity to also share and remind Members that MAS has put in place over the years, measures to limit the amount one can borrow to buy property, including the Total Debt Servicing Ratio (TDSR), which applies to both residential as well as commercial property. And now with higher rates and increase uncertainty over global growth prospects, MAS continues to urge all borrowers to exercise caution and to ensure that you are able to service your debts when taking on long-term financial commitments including big ticket items such as property purchases.