Help for Individuals Facing Property Loan, Credit and Insurance Premium Payment Problems from Continued Economic Uncertainties

Mr Murali Pillai asked the Prime Minister (a) to date, how many individuals have applied for the Special Financial Relief Programme (Unsecured); (b) how many individuals have been successfully subscribed into the Programme; (c) what are the main reasons for individuals not being able to participate in the Programme; (d) what is the average loan quantum of these individuals; (e) what is the average quantum that an individual saves as a result of converting his unsecured debt into this Programme; and (f) whether MAS can consider reducing the capped interest rate of 8% per annum, increasing the five-year loan tenor and extending the conversion period beyond December 2020 given the continued uncertainties Singapore's economy faces.

As of end-August 2020, financial institutions (FIs) had received 38,900 applications to defer property loan repayments. They had approved over 90% of these applications. More than 26,000 of the approved applications were for individuals seeking to defer their residential property loans. This amounted to almost $20 billion of deferments.

For personal unsecured credit, all eligible individuals can convert their outstanding balances from revolving unsecured credit facilities to term loans on a lower interest rate under the Special Financial Relief Programme (SFRP) (Unsecured). As of end-August 2020, the FIs granted more than 8,100 conversions. This amounted to more than $200 million of personal unsecured debt, or about $25,000 per individual on average.

For life and health insurance, the FIs received 32,700 applications for premium deferments, and about 90% of them were approved as of end-August 2020. This amounted to more than $66 million of premiums. Similarly, about 90% of more than 1,300 applications for flexible instalment plans have been approved.

The cost savings to borrowers who applied for SFRP (Unsecured) assistance will vary according to the situation of each borrower. They can be substantial. Take, for example, a borrower with outstanding unsecured credit card debt of $25,000, and is able to repay only the minimum credit card repayment of 3% outstanding every month, which works out to about $580 on average. By rolling over his credit card debt at a typical 26% per annum rate, at the end of five years he would have paid about $24,500 in interest cost and still have outstanding debt of about $14,500.

If he instead converts his outstanding credit card debt of $25,000 into a term loan under the SFRP (Unsecured), he will pay about $510 in monthly instalments and fully repay his debt by the end of five years, paying approximately $5,400 in total interest cost. The interest paid is hence 80% less than what he would have paid by rolling his credit card balance.

In designing SFRP (Unsecured), MAS and the industry took into account similar products in the market. These products are typically offered to customers with good payment records, and the range of interest rates is correspondingly competitive. The 8% cap on effective interest rate is already at the lower end of the range offered by banks. This relatively favourable rate is now being offered to borrowers under the SFRP (Unsecured) who are already past due on their payments. So, the terms are already very favourable.

While the current payment deferments on property loans have helped ease the cashflow pressures faced by borrowers, they come with higher overall debt. Where they are able to, borrowers would find it in their interests to resume making full loan repayments when the current relief measure expires.

Having said that, we recognise that some borrowers may continue to experience cashflow pressures into the beginning of 2021 due to impact of COVID-19. As such, MAS and the financial industry announced on 5 October 2020 an extension of support measures.

Under the extended support measures, property loan borrowers who face repayment difficulties can apply to make reduced instalment payments pegged at 60% of their original monthly instalment, which will cover interest and principal payments. For unsecured credit, the application period for borrowers to convert their outstanding balances from revolving unsecured credit facilities to term loans on a lower interest rate has been extended to 30 June 2021.