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Homeowners in Singapore could soon feel pinch from rising mortgages

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Banks in Singapore raised mortgage rates in June following a Federal Reserve decision to raise interest rates by 75 basis points in the same month to cool inflation. This is the most aggressive increase since 1994.

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Homeowners in Singapore are beginning to tighten their belts as they soon face an increase in mortgages thanks to rising interest rates.

The three largest banks in the country raised mortgage rates in June after the Federal Reserve decided to raise 75 basis points in the same month. To cool inflation — the most aggressive increase since 1994.

DBS has increased its rate 2.75% per year for 2 and 3 year fixed packagesOCBC Fixed interest rate for 2 years is 2.98%UOB’s 3-year fixed rate package is 3.08% per year. Interest rates have risen since the end of last year, when the three-year fixed rate was 1.15%.

Real estate experts say rising interest rates are not surprising.

Knight Frank’s Asia-Pacific investigator, Christine Lee, said mortgages with interest rates of around 2% are considered “super cheap.”

Homeowners who own existing real estate “would have enjoyed very low mortgage rates for two years, and now it’s just a couple of years ago normalization.” She said.

However, residents who own private property and link their mortgages to bank loans are beginning to feel a pinch.

Tan (34) and her husband (36), who worked for a software company and wanted to be called by her surname alone, bought the condominium in 2021 for S $ 1.75 million ($ 1.26 million). They applied for a two-year fixed rate mortgage of SG $ 1.31 million from a local bank with an interest rate of 1.1%.

When he heard the news, Tan said he was relieved at first because he wasn’t immediately affected. But the panic began when she realized that their mortgages could increase towards the end of 2023, when their fixed rates ended.

She said the couple are now paying a monthly mortgage of SG $ 4,274 and expecting it to “quite significantly”.

“What we have to do is reduce spending on unnecessary things — [fewer] Dining at restaurants, reduced shopping, and monthly wine purchases. “

Two scenarios for public housing owners

The situation is similar to the Singapore owner of a public housing apartment locally known as HDB Flat. Their mortgages are similarly tied to bank loans, not to the state’s public housing authorities.

Regine, 25, who worked as a civil servant executive and wanted to be called by her name alone, belongs to the first group. In 2020 she bought a 4-room resale apartment for SG $ 482,000 from DBS in a 5-year fixed rate package with an interest rate of 1.4%.

“We are still in the early stages of leasing, so we can rest assured that we have a fair amount of money and that it will be safe for the next few years,” Regine said. “Interest rates are crazy now.”

“Currently, the market is so volatile that we expect interest rates to stabilize over the next five years and bank rates not to exceed HDB rates,” she added.

When asked about how the couple could deal with high interest rates over the next few years, she said they were “still very comfortable” because they didn’t spend more than their means at home. Is. ”

Knight Frank Lee estimated that Singapore residents who own public housing could increase their monthly mortgages by $ 200 to $ 300 with current rate hikes.

However, flat owners who choose HDB mortgages instead of bank loans may be in a better position.

Their loan has a 2.6% interest rate, which is lower than the bank loan package.

31-year-old Samantha Pradeep, who owns a five-room apartment for SG $ 380,000 with her husband, said the bank loan interest rate was “a little attractive” when she bought the house in 2017. He said he was relieved at their decision to choose an HDB loan.

“It was a neck-to-neck battle between banks and HDB loans five years ago, but now it’s much different,” she said. “If we had a bank loan, it would have had a huge impact on our finances now.”

Singapore Introduced new measures in mid-December The aim was to cool the country’s bright red private and residential real estate markets. It raised taxes on subsequent real estate purchases and imposed strict restrictions on loans.

The government also said it would increase the supply of public and private housing to meet strong demand. Reported by the Ministry of National Development In the same month.

Cross the border

Mortgage prices are relatively stable in Malaysia.

The country’s central bank raised interest rates by 25 basis points on July 6, but real estate experts said the increase would not have a significant impact on mortgage prices.

Ng Wee Soon, a Malaysian who owns two investment properties in Johor Bahru and each costs about RM500,000 ($ 112,000), said the increase in mortgages could cost “about $ 100 per property.” Stated.

According to Knight Frank Lee, people who own multiple properties will eat up their cash spending each month as mortgage rates rise. “But if the rental market is resilient … Investment property owners can adjust rents to increase rental yield returns.”

However, Mr. N said that Malaysia’s economy is still recovering from the pandemic and the country’s housing surplus, so it “absorbs higher mortgage costs rather than raising rents.”

— CNBC’s Abigail Ng contributed to this report.

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