atans1

Mortgagors: No gd scenarios

In Economy, Property on 29/09/2011 at 6:44 am

Commentators like Tan Kin Lian have been saying for ages that interest rates cannot remain at so low levels here and that they must rise one day. Then those homeowners who overleveraged by not anticipating having more in interest would face problems servicing their loans.

Well it seems that higher interest rates are occurring finally because the central bank no longer wants an appreciating S$. It now seems to want the S$ to weaken.

The central bank is forcing the value of the S$ down, making it unattractive to hold S$ deposits. It has reversed its policy of allowing the S$ to strengthen against the US$ because it is afraid that a stronger S$ will lead to weaker exports, slower growth and a recession. It allowed the S$ to strengthen because it wanted to fight inflation, a fight that has yet to be won.

If the central bank continues to allow the S$ to depreciate, then S$ interbank rates will have to rise to attract S$ funds. However analysts are divided on how much further the central bank will force down the S$. Those with property mortgages may hope that MAS reverts to a stronger S$ policy. But then the problem is whether they then still have the jobs to service the loans. A stronger S$ could hasten the recession.

Snigger, snigger.

Update on 29 September 2011 at 2.05am

Mortgagors: Double whammy?

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  1. [...] – Before We Forget: I wonder – Thoughts of a Cynical Investor: Mortgagors: No gd scenarios – Alvinology: Money As Debt: Videos To Help You Understand Money – Wild Shores of Singapore: [...]

  2. Moderately higher rates are not that big a deal. At current low interest rates the bulk of monthly payments are actually capital repayments. Even a 100bp increase in rates will not increase the monthly repayment amount that much.

  3. To weaken the S$, MAS can just print more fiat currency correct? Increase money supply? Your kind advice will be much appreciated.

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