More families could find it tough to make home loan payments: MAS
Last quarter's rise in unsecured credit charge-off rate reflects this risk, says MAS
More families in Singapore could face difficulties making their home loan payments in the coming months, warned the Monetary Authority of Singapore (MAS).
This is especially since household financial resilience is ultimately tied to employment and income, it noted in its annual Financial Stability Review yesterday.
This risk is reflected in the rise in the unsecured credit charge-off rate in the third quarter of this year, which suggests more households could have problems servicing their home loans down the road.
This rate crept up from 5.9 per cent to 9.1 per cent between the third quarter of last year and the same period this year.
The credit card charge-off rate is a leading indicator of the credit quality of housing loans, said MAS.
This is because someone in an initial period of financial distress is likely to first miss his credit card bill payments and may also not be able to pay his home loan later.
MAS told The Straits Times: "On the whole, the number of mortgage deferments has tapered off since the peak in the second quarter after the circuit breaker was lifted."
Mortgage relief applications as at end-October exceeded 36,000.
Overall, household debt fell, as the growth in outstanding home loans also declined, following cooling measures in July 2018.
Housing loans account for about three-quarters of total household debt, and they are a key determinant of overall household financial vulnerability, MAS noted.
It expects household debt as a percentage of income, which has remained stable since 2015, to increase slightly in the near term "as accumulated labour market slack weighs on wages".
However, new home loans remained stable, despite the suspension of show-flat viewings during the circuit breaker period and safe management measures.
Credit card debt as a percentage of gross domestic product also moderated in the second and third quarters, MAS said, as households pulled back on spending and consumption, and banks offered relief measures.
But MAS cautioned that some households will continue to face challenges into next year.
"Labour market slack rose during the Covid-19 pandemic and domestic labour market conditions are likely to improve only gradually next year," it said, adding that the increased resident unemployment rate is expected to weigh on wage growth, which will worsen household debt servicing ability into next year.
"Households should remain prudent in taking up new debt and in committing to property purchases.
"Whenever possible, they should continue servicing or consolidating their existing obligations, which would be useful to enhance resilience against any unexpected shocks."