The government’s property curbs have compelled Singapore home buyers to become more prudent borrowers, according to ratings agency Moody’s and reported in the media.
Citing figures from the Monetary Authority of Singapore’s (MAS) latest financial stability report, Moody’s pointed out that the proportion of new borrowers with a Total Debt Servicing Ratio (TDSR) of under 40 percent has increased to 41 percent in Q3 2014 from 37 percent in Q4 2013.
This means more households have taken out loans that are less than the 60 percent TDSR limit.
Additionally, the share of new mortgages with a high loan-to-value (LTV) ratio of between 70 to 80 percent have fallen to about 60 percent from 70 percent previously.
“This is credit positive for Singapore banks because less risky mortgages will alleviate some of the negative pressure on banks’ asset quality that arises from elevated household leverage and property prices,” said Moody’s, adding that the incidence of bad loans linked to the luxury residential market is also expected to ease.
In 2013, UOB and OCBC saw a gradual gain in bad housing loans, with non-performing mortgages increasing from $253 million to $272 million in Q3 2013 at OCBC, while that in UOB climbed from $447 million to $502 million.
“A key reason behind the mortgage quality’s deterioration is the rise of delinquencies in high-end property mortgages, most of which originated before the tightening of credit writing,” said Eugene Tarzimanov, Vice-President and Senior Credit Officer at Moody’s.
“The deterioration of credit quality in this segment will continue into next year, but the rate will be milder. We expect overall housing loan delinquencies to continue to increase into 2015, but the pace will also be slower and will not exceed 1.5 percent (of housing loans),” he added.