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Rising interest rates: S'poreans need to prepare for higher borrowing costs, Govt to help borrowers understand loan commitments

SINGAPORE — Average interest rates over the next five years or more “will likely be higher” than in the last 15 to 20 years, and Singaporeans need to prepare themselves for higher borrowing costs, said Mr Chee Hong Tat on Tuesday (Oct 4).

Senior Minister of State for Finance Chee Hong Tat speaking in Parliament on Oct 4, 2022.

Senior Minister of State for Finance Chee Hong Tat speaking in Parliament on Oct 4, 2022.

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  • The Government will work with financial and non-financial institutions to better help borrowers understand their loan commitments
  • Mr Chee Hong Tat, Senior Minister of State for Finance, said this in response to a suggestion by MP Saktiandi Supaat 
  • Mr Saktiandi offered several suggestions to help Singaporeans adjust to higher interest rates for loans
  • He also asked the Government to give more support to small businesses in sectors that are highly reliant on external financing
  • Mr Chee said that most businesses are now able to manage debt-related risks and there are credit facilities available for them

SINGAPORE — Average interest rates over the next five years or more “will likely be higher” than in the last 15 to 20 years, and Singaporeans need to prepare themselves for higher borrowing costs, said Mr Chee Hong Tat on Tuesday (Oct 4).

On its part, the Government will work with financial and non-financial institutions to better help borrowers understand their loan commitments, as well as ensure that public housing, healthcare and education remain affordable and accessible, the Senior Minister of State for Finance added in a speech in Parliament.

Mr Chee was responding to Member of Parliament (MP) Saktiandi Supaat’s suggestion that banks clarify the impact of rising interest rates to their borrowers. Mr Saktiandi is MP for Bishan-Toa Payoh Group Representation Constituency.

Mr Chee said that non-financial institutions such as licensed moneylenders are already required to explain to the borrower the terms of the loan contract and breakdown of each repayment cost “all in a language that the borrower understands”.

“In addition, licensed money lenders are only permitted to impose fixed borrowing costs and fixed interest rates, ensuring that borrowers would not be caught off-guard by rising interest rates.” 

TARGETED INTERVENTIONS 

In his adjournment motion titled “Helping Singaporeans navigate a high-interest rate environment”, Mr Saktiandi called for the Government to implement targeted interventions to help Singaporeans adjust to higher interest rates.

He noted that recent moves by the United States' central bank to hike interest rates would mean that domestic interest rates are likely to increase further. This is because rates here are largely determined by the market and global trends.

In his speech, Mr Saktiandi suggested that institutions providing loans, such as banks and money lenders, should clarify the impact of rising interest rates to their borrowers.

For instance, such institutions may give borrowers an indicative range of interest rates to help them understand the impact of higher interest rates on their loans.

Doing so for home loans will also allow financial institutions to know if property buyers might encounter problems servicing higher loans if their incomes and saving rates become insufficient, he said.

“In such cases, I hope the Government or relevant agencies will work with the financial institutions to allow for longer-term mortgage tenures to accommodate home buyers who struggle to pay higher instalments,” Mr Saktiandi added.

In his response, Mr Chee said that the household debt situation in Singapore remains healthy as residential mortgages are subject to loan-to-value limits and debt servicing ratios. These cap the amount of debt and monthly mortgage payments people can take on when buying properties.

Mr Chee also highlighted recent moves by the Government to tighten maximum loan amount limits as one way to ensure that property buyers borrow prudently.

“We will continue to monitor the property market and review our policies where necessary in a rising interest rate environment,” he added.

We will continue to monitor the property market and review our polices where necessary in a rising interest rate environment.
Mr Chee Hong Tat, Senior Minister of State for Finance

Mr Saktiandi also asked if the Government could make some of its policies more flexible to help low-income households cope with higher borrowing costs.

For example, the Housing and Development Board (HDB) can consider allowing eligible households to make a one-time transfer from bank loans back to HDB loans, which offer a lower interest rate of 2.6 per cent per annum.

This is because such households may have been locked into the higher interest rates offered by banks while trying to search for a lower alternative to HDB’s interest rates, he said.

He noted that home loan rates for banks have risen from as low as 1.15 per cent a few months ago to about 3.85 per cent now.

MORE SUPPORT FOR SMALL BUSINESSES 

Mr Saktiandi also asked the Government to consider assisting small- and medium-sized enterprises and firms, particularly those in sectors that are highly reliant on external financing, such as construction.

The Government could provide sources of temporary financing to such firms so that they can lock in favourable interest rates, he said.

He cited the example of the Government’s Temporary Bridging Loan Programme, which provides businesses with access to working capital to ease their cash-flow.

To this, Mr Chee said that based on the Monetary Authority of Singapore’s assessment, most businesses are now able to manage debt-related risks. There are also credit facilities available for businesses such as the Enterprise Financing Scheme, which provides businesses with access to financing.

Mr Chee also said that the Government’s investment entities such as GIC and Temasek Holdings are closely monitoring changes to the interest rate environment and will continue to maintain diverse portfolios to manage investment risks.

The impact of short-term market volatility on the Net Investment Returns Contribution (NIRC), which is an investment framework used to grow the Government’s reserves, is also mitigated because it is designed to provide stability in an uncertain investment environment, he added.

As such, the NIRC provides a steady stream of returns to fund the Government’s annual expenditure even during periods of market uncertainty.

“We are able to benefit from this source of revenue today, and also during the Covid-19 pandemic, because previous generations of Singaporeans worked hard and built up our reserves," Mr Chee said.

“So we must likewise do the responsible thing by safeguarding our reserves and growing it further, so that we leave behind a strategic asset and lay the foundations for a better future that will benefit our children and grandchildren.”

Related topics

Parliament Chee Hong Tat housing bank housing loans Property interest rate

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