Should Singaporean households be terrified of rising interest rates?

Up to 10% of borrowers are overleveraged.

Interest rates are expected to begin rising this month, and some Singaporean households will be burdened by higher debt servicing obligations once the era of ultra-low borrowing costs come to a close.

Around 5-10% of borrowers have monthly debt servicing burdens greater than 60% in 2013, according to statistics from Singapore’s central bank.

BofAML expects rates to rise by 25 base points at every meeting of the US Federal Reserve starting December, and the report warned that these overly-indebted households are vulnerable even if rates rise very gradually.

However, overall economic risks are well-contained, as household debt growth has stabilized while household leverage has remained steady at about 75% of GDP.

“We think the risks are contained given very gradual interest rate increases and strict prudential and housing measures in place. Multiple rounds of property measures are proving successful in keeping a lid on household leverage, largely following slower mortgage growth. Personal loan growth has also eased considerably following the Total Debt Servicing Framework introduced in June 2013. We think the MAS will only consider unwinding cyclical property measures (stamp duties and loan-tovalue limits) in 2016 once the US Fed fund rates begin rising,” said BofAML.