Chart of the Day: This is what higher mortgage rates really mean for Singapore households

Brace for shrinking budgets soon.

Mortgage loan repayments will take an even bigger chunk of household budgets in Singapore as interest rates rise, according to a report by CIMB.

Using data from the most recently-available Household Expenditure Survey, CIMB analysed that monthly mortgage repayments will form around 70% of monthly household income if mortgage rates rise to 3.5%.

“Based on the latest available 2013 Household Expenditure Survey, a household spends an average S$4,725 on monthly household expenses, excluding rent or mortgage commitments. This takes up 45% of total average household income, including pension contributions. Assuming this ratio is still valid in today’s context and supposing a household spends a further 24% of income on monthly mortgage installments, total household expenditure would form c.70% of monthly income, exceeding the 60% TDSR limit,” CIMB said.

CIMB highlighted that households that are in the 80th -100th income quintile would spend around a third of household income on monthly expenses. Adding on a further 24% of income for mortgage commitments would raise this ratio to 55%, still within the TDSR limit of 60%.

Meanwhile, other income quintiles between 40th to below 80th would exceed this ratio if mortgage commitments are included.

“Thus, we see little wriggle room in terms of additional affordability at this point and think a case of lifting the current cooling measure would benefit only a minority of households. Additionally, a rebound in property prices could again shift this metric out of whack,” CIMB said.