Rising Interest Rates And The Effect On Mortgage Debt In Singapore

Denise Bay

Denise Bay

Last updated 26 January, 2022

Looking to purchase property? With interest rates rising in Singapore, you might want to reevaluate your ability to serve such long-term mortgage obligations. 

Did you know that household debt driven mainly by housing loans has grown throughout 2021? With interest rates rising, it is natural for homeowners, potential home buyers and property investors to think about the effect this can have on their home loan (i.e. mortgage debt). 

Read on to find out why interest rates are rising, how interest rates affect mortgage rates and why you might want to be more cautious when taking out a home loan for your new residential or investment property.  

Why are interest rates rising?

Being the small, open economy that Singapore is, global market movements — especially movements in US rates — strongly influence our domestic interest rates. 

The US Federal Reserve revealed that several Fed rate hikes are in the cards for 2022, with the first hike possibly taking place as early as March

While nobody knows exactly how many rate hikes to expect, due to the acceleration in inflation, Goldman Sachs predicts that the US Federal Reserve may enact four or more interest rate hikes this year! 

How do interest rates affect mortgage rates? 

A  good proportion of home loan packages in Singapore have interest rates pegged to the Singapore Interbank Offered Rate (SIBOR) and the Singapore Overnight Rate Average (SORA), which are linked to interbank exchange rates. 

Singapore’s mortgage interest rates are highly correlated with the benchmark Fed rate. When the Fed rate is cut, Singapore’s mortgage interest rates will move in tandem with the reduced Fed rate. When the Fed rate is raised, our mortgage interest rates will rise.  

Why should homeowners and potential homeowners be concerned about rising interest rates?

Singapore’s mortgage interest rates are slated to increase gradually thanks to the impending Fed rate hikes. The higher cost of borrowing translates into more expensive home loans!

Apart from higher monthly home loan repayment amounts, borrowers should also prepare for their total interest payment amounts to increase (and sting). As it is, the rate hikes don’t just affect new homeowners — existing homeowners who need to refinance their home loans will also be affected. 

As home loans are long-term financial commitments, the MAS has had no choice but to warn Singapore households to ‘exercise caution in taking on large new commitments, paying due regard to their ability to service long-term mortgage obligations, especially as interest rates are expected to gradually rise’, all the way back in early December 2021, even before the announcement of new property cooling measures

How will Singapore’s property market be impacted by rising interest rates? 

#1 Private property investors’ demand likely more subdued 

Higher interest rates can make investment properties less attractive to investors as the increased cost of borrowing will make such property purchases more expensive on the whole.  

Apart from that, when you consider that the Additional Buyer’s Stamp Duty (ABSD) has been increased quite significantly for Singaporeans, permanent residents and foreigners across the board, it’s natural that the attractiveness of investment properties would plunge.

What can people expect when it comes to private property prices? ERA forecasts a 0% to 3% year-on-year increase in private residential property prices in the next 12 months. Fewer new private home launches are expected in 2022. 

#2 HDB resale market expected to continue thriving 

While the government announced that public housing supply will be boosted to cater to increased demand, the HDB resale market is likely to continue thriving despite resale prices shooting through the roof amidst the pandemic. 

Why is that so? Extremely long BTO wait times and construction delays are the key reasons why many people are going into the resale market in search of a roof over their head — higher mortgage rates or not. The planned ramp-up in BTO supply isn’t going to help resolve the existing demand and supply imbalance. 

As such, the robust demand for resale flats will continue to push up prices by as much as 8% in 2022, according to Huttons Asia’s prediction.  

#3 Rental market to remain robust 

The rental market in Singapore is expected to continue picking up momentum in 2022 on the back of the gradual reopening of borders which will allow foreign expats, workers, as well as students to enter Singapore. 

Construction delays aren’t going to go away anytime soon. People who need immediate housing and those who can’t afford to purchase a home may have no choice but to turn to the rental market. This could further drive up rents by as much as 8% to 11% in 2022, with or without an increase in mortgage interest rates.

Read these next:
Singapore Property Market Cooling Measures: What It Entails
How Much Do You Need To Buy Your First Home In Singapore?
Complete Guide To HDB Grants: How Much Can You Get?
Step-By-Step Guide To Buying Your Very First HDB BTO In Singapore
The 5 Top Financial Trends For Singapore In 2022

While Denise has a thing for travel, K-dramas, 0% sugar bbt (with boba!), Japanese cuisine and flat white, her curious nature means all sorts of random tabs are open on her phone 24/7. She doesn’t like to pay full price for anything, too.


Use a personal loan to consolidate your outstanding debt at a lower interest rate!

Sign up for our newsletter for financial tips, tricks and exclusive information that can be personalised to your preferences!