BT : Mortgage default rates halve in two years

Business Times - 24 Aug 2010

Mortgage default rates halve in two years

Credit bureau cites buoyant property, stable job markets

By MICHELLE QUAH

(SINGAPORE) Mortgage default rates in Singapore have fallen dramatically in the last two years, as a buoyant property market and a stable employment situation helped individuals repay more easily.

According to figures released yesterday by DP Credit Bureau (DPCB), a national consumer credit bureau, the percentage of mortgagors in Singapore that have fallen behind in their repayments has halved over the last two years.

The average rate of default across all age groups fell to 0.43 per cent in March this year - down from the 0.59 per cent in March 2009, and the 0.89 per cent in March 2008.

This means that one in every 233 mortgagors are in default of their payments - down from one in every 112, two years ago.

'The numbers represent an improvement in the property market leading to more positive sentiment,' said Lincoln Teo, general manager of DPCB. 'This indirectly drives better payment behaviour from mortgagors. A home mortgage is the most important loan many people take out during their lives. Typically, one would choose to default on other borrowings and not a mortgage.'

'We have also seen greater consumer awareness on the maintenance of one's credit worthiness and how important it is for securing credit. Over the last two years, the credit bureau has seen a growing number of borrowers being diligent in their loan repayments in order to maintain or improve their credit standing,' he said.

The banks here say their experiences tie in with the data just released by DPCB.

OCBC Bank's chief credit officer of its consumer, group risk division, Joseph Wong, told BT: 'We have seen a general improvement in consumer credit repayments including mortgage repayments.'

DPCB's findings are also in line with recent data on the broader economy. Song Seng Wun, an economist with CIMB Research, notes that petitions for bankruptcy have fallen and should touch a new low this year.

'A lot of it (mortgage servicing) depends on property prices, which have been resilient and on jobs creation growth, which has been fairly buoyant. There should be enough momentum for both of these this year, even if growth in the US and Europe should slow down, which will mean that people's ability to pay off credit spending should be quite strong,' Mr Song said.

It's an observation which DBS Bank's managing director and head, consumer banking group (Singapore), Jeremy Soo, concurred with: 'The combination of (lowered unemployment rates and improved property prices) and a relatively low interest rate environment has resulted in a natural decline of mortgage defaults. DBS also engages our customers actively where needed, to work on their debt repayment, and that helps to lower the delinquency rate and ultimately default of loans.'

And a spokesperson at United Overseas Bank said: 'Mortgage payment defaults have decreased when compared to the same period the previous year, on the back of an improving economy and a lower unemployment rate.'

DPCB's data showed that people aged between 40 and 49 make up the largest proportion of mortgagors, of all the age groups - accounting for 37 per cent of all loans.

It also found that there has been a shift towards younger borrowers, over time - with the percentage of loans given to 21-29 year olds increasing, while those extended to people over 50 is declining.

It also found that the 21-29 year olds - which traditionally have had the highest percentage of defaults on their mortgages - are getting better in meeting their debt obligations. The percentage of defaults for this age group has fallen from 2.2 per cent in March 2008, to 0.42 per cent this year.

Instead, the 50-59 year olds have overtaken 21-29 year olds as the age bracket with the highest percentage of loans in arrears, with 0.62 per cent behind in their payments. DPCB's Mr Teo said: 'One explanation is that when people in this age bracket lose their employment, many find it hard to get another job, placing great pressure on their ability to continue servicing their mortgages.'

The bureau also found that almost half of all mortgage defaults take place between the third and the fifth year of the loan. It said that defaults within the first year of the loan are rare (4.1 per cent), while those between two and three years represent 15 per cent of all defaults. More established loans - those older than five years - account for 31 per cent of the total number of loans in default.

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