Outlook for Singapore's residential mortgage collateral bullish: Moody's

Average loan-to-value ratios only range between 50%-60%.

The credit quality of the residential mortgage collateral in Singaporean cover pools will be good in 2017, said Moody's.

According to the rating agency, mortgages in Singapore cover pools have low average LTVs of 50%-60%, which provides a cushion against the decline in property prices.

Residential property prices in Singapore have declined 10% since 2013 owing to the introduction of macro-prudential policy measures to cool what had been a heated real estate market.

"We expect property prices to decline further over the next 12-18 months. The macro-prudential policy measures will continue to curb property market activity over this period. The strong pipeline of newly-constructed private residential units may also create a potential oversupply, weighing on prices," it said.

Despite declining property prices, Moody's believes that Singapore’s low unemployment rate and low interest rate environment will support borrowers’ ability to make mortgage repayments, which will in turn support the credit quality of mortgage loans in cover pools.

"We forecast that Singapore’s economy will grow by around 1.6% in 2017 and 1.4% in 2016, down from 2% in 2015. We expect the rate of growth will ensure that the unemployment rate remains low, which will in turn support mortgage performance," it said.

Interest rates in Singapore are low – the 3-month SIBOR, a common benchmark for floating-rate debt, is below 1% – which helps to contain the debt burden of mortgage borrowers.