Growing household debt in Singapore worries banks

Many households overborrowing in the property market.

Housing loans by banks have increased 18% each year over the past three years, said the Monetary Authority of Singapore, the central bank. MAS urged banks to practice responsible lending, and consider the ability of borrowers to service their debt in a sustainable manner.

MAS said some 5% to 10% of borrowers in Singapore have probably over-leveraged on their property purchases, meaning they have total debt service payments at more than 60% of their income

Lower-income households and those with lesser savings could be strained if mortgage rates rise. Home loans as a percentage of gross domestic product currently stand at 46%, compared to 35% three years ago.

MAS noted that the combination of low interest rates, growing leverage and surging property prices poses significant risks to financial stability.

Moody's Investors Services last week downgraded its outlook on Singapore's main banks from "stable" to negative" citing rapid loan growth and rising real estate prices.