Curbing Excessive Borrowing

Mr Yee Jenn Jong asked the Prime Minister (a) what is the average number of housing loans taken up by over-leveraged borrowers with total debt payments at more than 60% of their income; (b) what is the average total housing loan owed by these over-leveraged borrowers; (c) what percentage of total household debt do the housing loans of over-leveraged borrowers make up; and (d) what estimated percentage of these over-leveraged borrowers can be pushed into forced property sales if the mortgage rates were to rise by 3 percentage points.

Madam, Singapore's household balance sheets are, on the whole, in good shape. Even excluding the value of property assets, cash and deposits owned by households exceed household debt in aggregate.

Another indication of the health of household balance sheets is the household debt-to-income ratio. This ratio fell in the second half of the last decade and has since risen because of the strong growth of investments in the property market. However, the debt-to-income ratio, estimated at 2.1 times in 2012, still remains significantly lower than in the middle of the last decade when it peaked at 2.6 times.

Overall, therefore, households are currently not more leveraged than they have been in the past decade. The problem instead lies with a segment of

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borrowers. MAS knows from an examination of banks' credit files that some households are likely to have borrowed too much, lulled by an extended period of low interest rates. These are the borrowers that could be vulnerable when interest rates normalise.

There is no precise measure of over-leverage. A rough guide is to look at the debt service burden, or the proportion of one's monthly income that is used for monthly re-payment of all loans, including the interest payments. By this measure, MAS estimates that about 5% to 10% of borrowers have a monthly debt servicing burden greater than 60% of their monthly income. It will be reasonable to consider them as over-leveraged. Housing loans constitute the bulk of their borrowings.

However, while over-leveraging will cause borrowers difficulty, especially when interest rates rise, this does not mean that they will automatically default on their loans. Most of this group of borrowers with debt service burdens of more than 60% of their income, meaning overly leveraged category. Most of these borrowers have above-average income levels. In other words, their incomes are higher than the median household income of $6,000. Majority have also taken up private housing loans and are currently servicing only one housing loan. Therefore, they are likely to have a larger absolute buffer of income and assets.

Nevertheless, we cannot be complacent about household leverage. More borrowers, including those whose debt service burdens are currently below 60% of income, will face some difficulty when interest rates rise. Fundamentally too, we have to prevent a situation where credit supplied at low interest rates drives property prices, taking prices beyond levels that can be sustained by underlying income growth. This is why the Government has taken a series of proactive measures to restrain borrowings for property purchases.

Apart from housing loans, MAS is also dealing with other components of household debt. As Members would be aware, MAS has reintroduced Loan to Value limits and tenure curbs for car loans. MAS has also proposed new rules on unsecured credit and credit cards to help individuals with credit problems avoid further debt. MAS will continue to encourage prudence in both lending and borrowing and help to keep household debt at a manageable level.

I thank the Member for the clarification. It is an important one because at the aggregate level, as the Member has observed, our household balance sheets are resilient. That is clear from a wide range of indicators. So, as I indicated in my reply, it is a segment of borrowers who have perhaps fallen into the overly leveraged category. But as I also indicated, if you would look more closely at the profile of these borrowers, they are not necessarily in the vulnerable category. The bulk of them have above-average household income levels.

For the bulk of them – it is close to more than 90% – are servicing private property loans, and more than 80% of them are servicing one loan, not multiple loans so they are owner-occupied. For this category of borrowers, while they have exceeded 60% in terms of Total Debt Servicing ratio, they probably have a larger buffer in terms of their household income and assets, and they would be in a lower risk of default. So, overall, I think both at the macro and micro levels, our situation is quite resilient but we should not be complacent, as I have mentioned, and that is why we have introduced measures recently and we will continue to watch the market closely.