Property purchase is a long-term commitment and buyers should always remain cautious before they make a purchase with a housing loan or mortgage. Singapore Interbank Offered Rates (SIBOR) has been on the rise since 2016. Homebuyers are expected to pay a higher monthly mortgage; hence they should adopt an even more careful approach and calculate the affordability of paying their monthly mortgage before they commit to a property purchase.
Despite this increase, interest rates are still expected to be low when compared to the rates before the 2008 financial crisis. This is in addition to the implementation of the TDSR – a financial framework introduced in 2007, which uses an implied 3.5% interest to calculate buyer’s loan eligibility. Many homebuyers have factored this in and are prepared for a higher monthly mortgage rate when calculating the affordability of housing loans. Rising mortgage costs will reduce housing demand, but the decline is not expected to be significant because interest rates are expected to remain lower given that the US economy has yet to see a full recovery and Europe has just announced a series of stimulus.
With the challenge of increasing interest rates and renting out available units as more come into the market, Singapore’s property market will see the completion of more than 70,000 private residential properties by the end of 2018. Out of which, a not insignificant number of 20,800 units are due for completion by the end of 2017. So, if the property owners are unable to rent out their properties and service their mortgage loans, then the market is expected to see more mortgage sales.
Homebuyers should take the opportunity of lower prices to enter the market when the interest rates are constantly low because sellers will be more willing to negotiate on the selling price for owner-occupiers. When the mortgage interest rates are low:
- buyers can afford to buy more of a home;
- they get more for their money so they are more motivated;
- there is more activity going on; and
- it is just good for the whole real estate market in general.
A buyer can afford a certain payment if they are getting a loan from a bank. Based on their income and expenses, a lower interest rate increases the number of units of real estate they can buy, and less has to go towards paying interest on the loan. On the other hand, the higher the interest rate the more of that payment has to go towards paying the rate and the less goes towards buying a home. So, basically, they get less for their money when rates are higher and more for their money when rates are lower. With this is mind, it is crucial to compare mortgage rates in Singapore to ensure you get the most for your money.