SINGAPORE: The risks to households in Singapore are expected to be contained, but the sector should continue to exercise prudence, the Monetary Authority of Singapore (MAS) said on Wednesday (Nov 27).
Households have strong financial buffers, and the easing of mortgage rates coupled with stable growth in income have helped debt servicing ability, the regulator and central bank said in its annual financial stability review.
It added that the liquidity position of households has improved further, with growth in cash and deposits outpacing that of total household liabilities.
The private housing market has been stabilising, so asset price volatility risk should be contained.
“However, given the heightened geopolitical uncertainties and trade tensions in the macrofinancial environment, households should continue to exercise prudence in their financial management,” MAS said.
HOUSEHOLDS STILL ABLE TO SERVICE DEBTS
Though household debt increased in the past year, financial assets grew faster, the report said.
Around three-quarters of total household debt comprises housing loans which are backed by property collateral.
Outstanding housing loans increased by 1.6 per cent in the third quarter of the year compared with the same period a year ago. New loans were largely offset by borrowers paying down existing mortgages when interest rates were higher.
Households’ ability to service their debt remains healthy.
“A stress test on households, assuming an immediate increase in mortgage rates to 5.5 per cent, together with a simultaneous income loss of 10 per cent, affirms that debt servicing capacity is sufficient to survive adverse shocks,” MAS said.
In such a scenario, 90 per cent of households would be able to continue paying their mortgages, while a small segment of highly leveraged borrowers would be at risk. But these borrowers may have cash buffers and Central Provident Fund savings that were excluded from simulations.
