Bigger share of new home loans now less risky

LEVELS of mortgage debt held by Singapore households are easing further, thanks to government property cooling measures, a new report has concluded.

Ratings agency Moody’s also said in its report that the incidence of bad loans for high-end homes – a major source of recent concern – is also set to diminish.

Significantly, this means a positive credit outlook for local banks, the agency said.

In its report, Moody’s cited the data in the Monetary Authority of Singapore’s (MAS) financial stability report released last week.

It said that the share of new borrowers with a total debt servicing ratio (TDSR) below 40 per cent has improved from 37 per cent in the fourth quarter of last year to 41 per cent in the third quarter of this year.

The TDSR is the proportion of income that goes towards paying off debt such as mortgages.

Moody’s said this means more households with housing loans – accounting for 74 per cent of total household liabilities – are falling below the government mandated 60 per cent limit for TDSR.

In another positive sign, the share of new mortgage loans with a high, 70 per cent to 80 per cent loan-to-value ratio has also dropped from 70 per cent to around 60 per cent.

“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,” Moody’s said.

Over the past year, OCBC Bank and United Overseas Bank have reported a gradual increase in bad housing loans, with non-performing mortgage loans rising from $447 million to $502 million in the third quarter at UOB.

OCBC also saw its housing non-performing loans jump from $253 million to $272 million in the same quarter.

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