ST : Drop in mortgage default rate here

Aug 24, 2010

Drop in mortgage default rate here

By Jonathan Kwok

THE level of mortgage default has dropped dramatically over the past two years, thanks to the improving property market and low interest rates.

Only 0.43 per cent of borrowers - or one in 233 - were in default in their mortgage payments in March. That is down from the 0.59 per cent - or one in 169 - at the same point last year. It is also less than half the rate in 2008, when the economy began to sour. Then, 0.89 per cent - or one in 112 - of mortgage holders lagged in their payments.

'The numbers represent an improvement in the property market leading to more positive sentiment,' said Mr Lincoln Teo, general manager of information firm DP Credit Bureau, which conducted the study. 'This indirectly drives better payment behaviour from mortgagors.'

He added the better payment situation comes amid greater efforts from consumers to maintain or improve their credit worthiness as they realise its importance for securing future borrowings. A loan is regarded to be in default, for example when it is 90 days past due.

Mr Teo also pointed out that for many, a home mortgage is the most important loan they will ever take out: 'Typically, one would choose to default on other borrowings and not a mortgage.'

The study also showed middle-aged Singaporeans are overtaking younger borrowers as the group with the highest mortgage default rate. People aged between 50 and 59 had the highest percentage of loans in arrears, with 0.62 per cent in default.

Mr Teo said many people in this group find it harder to get another job if they are laid off, affecting their ability to pay their mortgage.

The most striking change came in the level of arrears - 0.42 per cent - for people aged between 21 and 29 years. This group traditionally has the highest proportion of defaults, but they have shown a marked improvement. However, Mr Teo said other data from DP Credit Bureau shows younger borrowers are still the most likely to default on car loans, credit card debts and overdrafts.

DP Credit Bureau's study was based on loan records from its members, which include OCBC Bank and United Overseas Bank. DBS Bank is not a DP Credit Bureau member, but it told The Straits Times it is also seeing a fall in mortgage defaults.