RISING MORTGAGES LOOK “MANAGEABLE” FOR NOW
Turning to household debt, DBS said mortgage repayments have increased over the past year amid rising interest rates but remain “manageable” for now due to income growth.
The bank’s median customer is now borrowing around 3 per cent more for a home purchase. Median mortgage payments have also increased by about 12 per cent.
So far, the income growth across all customer groups has been “more than sufficient to offset the rises to mortgage rates and with some to spare”, said DBS Group Research’s analyst Fang Boon Foo.
Nevertheless, higher monthly mortgage payments could still impact those earning below S$5,000.
Firstly, these home owners are allocating a bigger portion – more than 50 per cent – of their income growth to service the increase in monthly mortgage repayments, according to the report.
This is higher than the 45 per cent for those earning between S$5,000 to below S$7,500, 40 per cent for those with income of S$7,500 to below S$10,000, and 43 per cent for income earners of S$10,000 and more.
Secondly, more than half of those earning below S$5,000 have mortgage loans under floating rates, meaning that additional stresses could arise when mortgages are refinanced on higher interest rates, the bank said.
Mr Seah sees more upside to come in the Singapore Overnight Rate Average (SORA), which is the benchmark interest rate used for various financial products, including floating home loans.
Amid the successive interest rate hikes by the US Federal Reserve, SORA has risen more than 10-fold from 0.3 in May last year to about 3.6 currently, he said.
“Our expectation is that the bias is still marginally on the upside. We do expect the SORA to end the year at about 3.7, with one more Fed hike coming up,” the economist added at the media briefing.
Meanwhile, DBS customers have increased their usage of credit cards, with spending up 12.8 per cent as of May 2023 from a year ago.
Reasons for the rise in usage include the ability to tap on card promotions and rewards, as well as qualify for higher interest rates under DBS’ Multiplier savings account.
Despite the increase, credit card debt looks “manageable” as customers are paying their credit card bills on time to avoid the high interest charges, the bank said.
Looking ahead, DBS expects inflation and interest rates to remain elevated. There could also be an additional challenge of slowing growth momentum, which would in turn weigh down on income growth.
“I think the underlying message to everyone is that we need to live within our means. We need to essentially practice prudent budgeting and also to be more watchful in terms of our spending,” said Mr Seah.