Bankruptcy applications may pick up further as 'small segment' of vulnerable borrowers face squeeze

SINGAPORE: Bankruptcy applications by individuals in Singapore could pick up further, as a “small segment of more vulnerable borrowers” face higher risks of financial distress amid rising interest rates and slower economic growth, said Minister of State for Trade and Industry Alvin Tan on Tuesday (May 9).

Such applications came in at 959 for the first quarter of this year, slightly higher than the average quarterly figure of 912 in 2022, he said in response to a parliamentary question from MP Saktiandi Supaat (PAP-Bishan-Toa Payoh).

Mr Saktiandi asked for updates on the household debt situation in Singapore, to which Mr Tan replied: “Naturally households with outstanding mortgages will see higher borrowing costs, as interest rates rise from the exceptionally low levels in the past decade.

“They will face the impact of a rise at different points of time, depending on the types of loan packages that they have taken up.”

As of the first quarter of 2023, about 38 per cent of mortgages extended by financial institutions for private residential property purchases are floating rate packages that move in tandem with market interest rates.

The remaining 62 per cent are either on fixed-rate mortgages, or loan packages with rates linked to board rates or fixed deposit rates.

He also cited a separate written parliamentary reply issued on Monday, which noted that nearly 27,000 homeowners had refinanced their mortgages with financial institutions between March 2022 and February this year.

These refinanced mortgages account for 6 per cent of the total number of outstanding mortgage loans.

The Monetary Authority of Singapore (MAS) estimated that the increase in mortgage payments for these borrowers was about S$240 on average, or nearly 2 per cent of their monthly income.

By comparison, the average monthly income of the 27,000 homeowners who refinanced their loans had increased by about 10 per cent over the last three years, Senior Minister and Coordinating Minister for Social Policies Tharman Shanmugaratnam said in the written reply.

Reiterating that, Mr Tan said the higher increase in income over the past three years versus home loan rates would have helped to cushion the impact of higher mortgage repayments on homeowners.

Separately, the number of property-related foreclosures has not seen a pick-up so far.

There were five commercial and five residential loans foreclosed by financial institutions in the first quarter of this year, versus an average of four commercial and 12 residential foreclosures per quarter in 2022, said Mr Tan.

Mr Saktiandi, in a supplementary question, raised a recent report by The Business Times which noted a spike in the number of mortgagee listings during the first quarter of the year based on data from the Law Ministry. 

In response, Mr Tan said that the use of mortgagee listings as an indicator of households and businesses in distress may be limited, as the extent of distressed sales could likely be overstated in part due to double counting.

“We are not privy to the auction houses’ methodologies, but there are challenges in tracking such listings as there is no central database,” said Mr Tan, citing how a property put up for sale may count as several listings if the bank or owner lists it with multiple agencies.

Referring to the media report, Mr Tan said the spike was a quarter-on-quarter change from the fourth quarter of 2022, which may reflect a low-base effect from the muted market activity in the year-end period.

Mr Tan, who is a board member of the central bank, stressed that MAS has over the years put in place measures to limit the amount one can borrow to buy property, including the total debt servicing ratio.

“Now with higher rates and increased uncertainty over global growth prospects, MAS continues to urge all borrowers to exercise caution and to ensure that you are able to service your debts when taking on long-term financial commitments, including big-ticket items such as property purchases.”