Singapore’s mortgage interest rates tend to be closely linked to global interest rates. When the pandemic began in March 2020, the US Federal Reserve slashed interest rates, in turn, lowering Singapore’s. Back then, interest rates were near-zero and the borrowing costs were low. But if you’ve been monitoring the market, you would have realised interest rates have climbed quickly in 2022.
So, how are interest rates currently moving and how will these interest rate movements affect your property buying and home financing plans for 2023? Let’s find out.
Find out What Homeowners Feel about the Current High Interest Rate Environment in Singapore
COVID-19 and Global Interest Rates: Understanding Why Mortgage Rates Won’t Stay Low Forever
As we all know, the pandemic has been the cause of a global recession, leading central banks worldwide to cut interest rates. This is common practice during a recession as lower interest can help boost economic growth. Lower interest rates make it easier to borrow money, which in turn encourages buying and keeps the GDP and economy chugging along. Conversely, if an economy is getting overheated, raising interest rates can cool markets.
Home loans in Singapore tend to be pegged to SIBOR and SORA, although there is a move towards SORA-based loans. SIBOR and SORA aren’t the same, but they do show similar general trajectories and both measure the interest rates on the interbank markets. SIBOR, in particular, is highly correlated to the US Federal Reserve’s benchmark federal funds rates.
In a low-interest rate environment, the interbank rate will naturally remain low, which pulls down mortgage interest rates. Effectively, the global recession brought on by the COVID-19 pandemic kept interest rates depressed in 2020 and 2021. This made it easier for homebuyers to secure low-interest home loans.
But as global economies recover and the US is hiking interest rates in response to inflation, it is clear that the home buyers’ paradise of low interest rates has ended. Borrowing costs have increased and those financing their properties with floating rate bank loans are likely to have felt the pinch.
Rising Mortgage Interest Rates in Singapore: What Can We Expect in 2023
The fate of Singapore’s interest rates is closely intertwined with the US interest rates. So, it is important to know if the US Fed has plans to further increase interest rates. Here’s a look at the US Fed rate hikes observed in 2022.
US Fed Rate Hikes in 2022
| US Federal Open Market Committee meeting date | Rate change (bps) | Federal funds rate |
| 17 March 2022 | +25 | 0.25% to 0.50% |
| 5 May 2022 | +50 | 0.75% to 1.00% |
| 16 June 2022 | +75 | 1.50% to 1.75% |
| 27 July 2022 | +75 | 2.25% to 2.50% |
| 21 September 2022 | +75 | 3.00% to 3.25% |
| 2 November 2022 | +75 | 3.75% to 4.00% |
| 14 December 2022 | +50 | 4.25% to 4.50% |
As you can see, 2022 saw a series of aggressive back-to-back interest rate hikes. For those currently repaying floating home loans, you must have seen your interest rates increase. So what does 2023 have in store for us?
US Fed Rate Hikes in 2023
| US Federal Open Market Committee meeting date | Rate change (bps) | Federal funds rate |
| 1 February 2023 | +25 | 4.50% to 4.75% |
| 22 March 2023 | +25 | 4.75% to 5.00% |
| 3 May 2023 | +25 | 5.00% to 5.25% |
According to the PropertyGuru Singapore Property Market Outlook 2023, interest rate hikes are expected in 2023 but are likely to moderate in the second half of the year. As predicted, there are signs that interest rates are already moving sideways. Take the latest interest rate hike in May 2023; the increase was by 25 basis points, pointing towards more modest increases observed for the year.
In response, reference rates are also beginning to flatten out. Here’s a quick look at the 3M Compounded SORA trend in 2023 so far.
So while we are still in a high interest rate environment, there is some good news: what goes up must come down and it looks like we can expect modest increases. For those who are on a floating home loan, you can expect some relief from persistent increases. What about those looking at financing their homes with fixed rate home loans?
Interest rates on fixed rate home loans have been declining since the beginning of the year and are likely to fall further. In 2022, fixed rate home loans were above 4% but have since dipped. A quick search on our home loan comparison tool reveals that the most competitive mortgage package (in terms of the lowest interest rate offered in the first year) is a fixed-rate home loan at 3.40% (as of 5 June 2023).
What Can Homeowners Do to Manage Their Home Loan Interest Rates?
In this high interest rate environment, homeowners would want to tighten their belts. Ensuring there is enough room in one’s budget for higher home loan repayments is important. And if you haven’t already, consider refinancing your home loan.
According to Paul Wee, Vice President – PropertyGuru Finance, homeowners should:
- Consider making partial or full repayments if rates become too high via cash and/or CPF to manage cash flow demands
- Consider increasing the use of CPF for monthly loan servicing
- Split or refinance loans into separate fixed or variable loans to spread the risk between two portfolios
- If a homeowner is currently on a SIBOR-linked home loan package, he or she may consider moving to a SORA-pegged one, as the latter is a backwards-looking rate, and rate increases will lag the former. In addition, SIBOR will cease to be quoted from 2024. Banks may also possibly withdraw SIBOR packages earlier, compelling clients to move to other available packages and exacerbating the risk.
Paul also advises those who are seeking certainty to refinance to fixed-rate loan packages.
“If you prefer to be assured that your monthly mortgage payments will remain unchanged for some time, it may be beneficial for you to enter a fixed rate package.”
Before Taking a Loan, Consider the Worst-Case Scenario
Additionally, be cognizant of the worst-case scenario before taking out a home loan. Ensure you’re still able to repay your loan should it come to pass (i.e. if you lose your job) and have a buffer.
When budgeting, assume a mortgage interest rate of 3.50% (banks already do this when assessing your debt servicing ratios). It’s the rate we set for our Mortgage Affordability Calculator too.
Another thing to note is that the home loan package with the lowest interest rate is not always the best choice. Sometimes, low promotional rates may seem very attractive, but it’s foolish to only calculate the costs in the first year. Do the math for the overall costs over the lifespan of the package. The rates may increase sharply after the promotional period, or there may be other fees or less attractive terms and conditions.
Financing Your Property in 2023
If you’re thinking of buying a new home, refinancing your existing home loan or shaking up your investment portfolio with some new property picks, now is not the time to throw caution to the wind. Research your home loan options thoroughly and make an informed decision.
Remember, always look for loans with features that match your individual needs. As Paul puts it, “the ‘best’ home loan may not be the ‘best’ for you”!
Need personalised advice on home loans? Get in touch with one of PropertyGuru’s Mortgage Experts and find the best home loan for you.
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Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.
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