Interest Rates Are Expected to Increase Further In 2023: How This Affects Your Mortgage in Singapore

Interest Rates Are Expected to Increase Further In 2023: How This Affects Your Mortgage in Singapore
Interest Rates Are Expected to Increase Further In 2023: How This Affects Your Mortgage in Singapore

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.

That said, if you’ve been monitoring the market, you would have realised interest rates have climbed quickly in the past year. 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 3.68% (as of 5 April 2023).

So, how will rising interest rates affect your property buying and home financing plans for next year? 

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?

According to the PropertyGuru Singapore Property Market Outlook 2023, interest rate hikes are expected in 2023 but are expected to moderate in the second half of the year. As it is, the latest interest rate hike on 22 March 2023 was by 25 basis points, pointing towards more modest increases observed for the year.

What Can Homeowners Do to Manage Their Home Loan Interest Rates?

In this high interest rate environment, homeowners would want to tighten their belts and prepare to pay even higher interest rates moving forward. 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 3.5% (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.

Anticipating More Hike Rates 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.

Chat with us on Whatsapp

Fill up an online form

Disclaimer: Information provided on this website is general in nature and does not constitute financial advice.

PropertyGuru will endeavour to update the website as needed. However, information can change without notice and we do not guarantee the accuracy of the information on the website, including information provided by third parties, at any particular time. Whilst every effort has been made to ensure that the information provided is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult a financial planner or your bank to take into account your particular financial situation and individual needs. PropertyGuru does not give any warranty as to the accuracy, reliability or completeness of information which is contained on this website. Except insofar as any liability under statute cannot be excluded, PropertyGuru and its employees do not accept any liability for any error or omission on this website or for any resulting loss or damage suffered by the recipient or any other person.

Compare listings


What you must know before buying Singapore property…

Subscribe to our mailing list