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59% of First-time Homebuyers Will Delay Buying a House if Home Loan Rates Continue Rising (2023)

Joanne Poh
59% of First-time Homebuyers Will Delay Buying a House if Home Loan Rates Continue Rising (2023)
Inflation rates in Singapore are coming down from a high. After the COVID-19 pandemic hit our shores, they rose from -0.7% in April 2020 to a peak of 7.5% in August 2022 and maintained at that level throughout September 2022.
Recently, however, the Singapore Consumer Price Index, which tracks inflation rates in Singapore, showed that inflation rates have dipped consecutively for four months (April 2023 to July 2023, from 5.7% to 4.1%).
But while financial experts are predicting that inflation rates in Singapore will continue to ease throughout the rest of 2023, they are still high compared to before the COVID-19 pandemic. And the high cost of living environment is impacting the way consumers are shopping. This is especially the case for big-ticket items, like a property.

Study: Singaporeans Delaying Property Purchases Due to Continued Inflation and High Mortgage Interest Rates

In fact, 53% of the 1,000 Singaporeans surveyed in the PropertyGuru Singapore Consumer Sentiment Study H2 2023 said that they would delay buying a house until inflation eases. This sentiment was similarly expressed in H1 2023, where 55% of respondents voiced the same opinion.
Market and mortgage interest rates, which tend to move in tandem with inflation, are yielding similar sentiments from consumers. Backstory: In similar news to high inflation rates, the latest 26 July 2023 US Fed meeting concluded with interest rates rising to a benchmark of 5.25% to 5.5%, setting US Fed rates at a 22-year high.
As a global economy, US Fed rate shifts are usually followed by movements in interest rates in other parts of the world. Case in point: As of September 2023, benchmark rates like the 3M Singapore Overnight Rate Average (SORA) in Singapore have also risen to 3.696% from near zero since the COVID-19 pandemic and are sitting at a high. In turn, we have seen mortgage interest rates shoot up.
Now, let’s explore how different groups of property seekers are responding to the current high mortgage interest rate environment.

1. Non-property Owners (First-time Home Buyers)

Among the different homebuyer profiles, first-time homebuyers are more likely to be younger and on a tighter budget. As such, they are also most affected by the high property prices and increased borrowing costs in the current high interest rate environment.
One demographic of first-time homebuyers is singles. Singles under 35 years old and need a home immediately can only buy private property as they are under the age eligibility limit for public housing. Otherwise, they have to wait until they are 35, meet the income ceiling if they want a BTO flat, and are limited to 2-room Flexi units.
Another demographic is married couples with kids. While they can choose to buy HDB flats, those who are interested in buying private property would likely choose larger units to accommodate their children and family planning goals.
Of the two homebuyer profiles, 59% indicated they would hold off buying a home if mortgage interest rates were to increase. This sentiment was higher among singles, 67% of whom expressed an intention to delay. This is understandable since singles are only able to leverage their salaries to finance their homes.

2. Property Owners

It turns out that existing property owners are also holding off on buying new properties, with 58% saying that they will postpone purchasing a new property if mortgage interest rates increase.
Apart from the high interest rates, another factor raising the acquisition cost for those who want to buy their second and subsequent properties could be the higher Additional Buyer’s Stamp Duty (ABSD) rate hikes, announced as part of the April 2023 property cooling measures.

3. Property Sellers

Buyers are not the only ones feeling hesitant in the current market conditions. One in three (34%) property sellers said that they would pause selling their property if mortgage rates do not start to trend downward.
This is mainly because high interest rates would make it more difficult for them to finance a new home. Sellers planning to sell their primary home and buy a new one with the proceeds are thus feeling wary about upgrading their property at the moment.
One group of sellers feeling hesitant in the current market are private property owners hoping to sell their homes and rightsize to an HDB flat. Due to the mandatory wait-out period, these sellers will need to sell their private homes for at least 15 months before buying an HDB resale flat. On top of this hassle, many are unwilling to sell their homes in 2023 as it means paying record-high rent prices during their wait-out period.
Those thinking about selling their existing property to buy a new condo may also be hesitant about the $2,000 per sq ft (PSF) new price norm for major launches, as noted in the PropertyGuru Singapore Property Market Report Q3 2023.
These buyers will also have to rent for about three years before the development receives its Temporary Occupation Permit (TOP) and is ready to be moved into. Given current rent prices, they may end up paying landlords more money than it would take to buy a resale condo!

Will Interest Rates Go Down in 2023 for Singapore?

As mentioned, interest rates are significantly higher than they were during the COVID-19 pandemic. In a similar way that inflation rates seem to be easing, interest rates do not seem to be trending as steeply upward as they have been for some time.
In fact, according to Paul Wee, Vice President – PropertyGuru Finance, interest rates have begun moving sideways in the second half of 2023. US core inflation declined from 5.4% in February 2022 to 4.3% in July 2023, suggesting the likelihood of lower interest rates.
“The narrative is shifting from asking ‘Will mortgage rates continue to rise?’ to ‘When are mortgage rates expected to fall?’ In the last year, mortgage interest rates rose quickly from the near 1% levels during the COVID-19 pandemic.
When interest rates were climbing rapidly, homebuyers chose longer-term fixed-rate loans. However, fixed rate packages with 1-year or 2-year lock-in periods, as well as floating rate packages may be better presently, to prioritise flexibility to capitalise on interest rate changes.”
Paul Wee also shares an interesting dynamic between property prices and mortgage interest rates that could soothe property sellers hesitant to bite the bullet on buying another property. He says, "For property sellers concerned that high interest rate costs could affect their ability to acquire new properties, remember that mortgages are not a ‘once-off’ event.
Instead, mortgages typically last some 25 to 30 years, depending on the property type. Ironically, buying their next property at the current interest rate levels may help them avoid the rising property prices which typically come with a lower interest rate environment."

Need Help with Financial Planning for Your Next Home?

Given the challenges property buyers will have to deal with, the need for careful financial planning has never been stronger. Any property decisions must be informed and thoroughly researched in order to ensure that one is able to comfortably keep up with mortgage repayments in the future.
If you need any help planning your finances before buying a property or looking for advice on your home loan, speak with a PropertyGuru Finance Mortgage Expert today – best of all, their services are free!
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Disclaimer: The information is provided for general information only. PropertyGuru Pte Ltd makes no representations or warranties in relation to the information, including but not limited to any representation or warranty as to the fitness for any particular purpose of the information to the fullest extent permitted by law. While every effort has been made to ensure that the information provided in this article is accurate, reliable, and complete as of the time of writing, the information provided in this article should not be relied upon to make any financial, investment, real estate or legal decisions. Additionally, the information should not substitute advice from a trained professional who can take into account your personal facts and circumstances, and we accept no liability if you use the information to form decisions.

More FAQs About Home Loan Interest Rates

High interest rates can help to tamper inflation by slowing down the market.

High interest rates increases borrowing cost of bank loans, which means borrowers must make higher monthly repayments.

Higher mortgage interest rates translates to higher monthly mortgage payments.