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When Will Mortgage Rates Go Down In Singapore 2023?

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As we step into the second half of 2023, we are often asked this question by a lot of homeowners and potential buyers: whether Singapore’s mortgage rates will go down in 2023 assuming we have reached the peak? The simple answer to this is a resounding “Yes”, mortgage rates will be going down but when they will go down is slightly more of a mystery.

We will discuss what factors impact mortgage rates in Singapore, how homeowners can manage higher home loan interest rates and finally provide some insight into when mortgage rates in Singapore might be going down in 2023.


How do the US Fed rate hikes in 2023 affect my mortgage in Singapore?

In 2022, the US Fed hiked its Fed rate seven times – from 0.25% to 4.5%. In early February 2023, the US Fed raised its benchmark federal funds rate by 25 basis points to a new range between 4.5% and 4.75%, the highest since 2007.

This is according to the previous signals from the Fed that interest rates will continue to increase until inflation is under control. The increase in interest rates was anticipated, and therefore no severe impact was expected on home mortgage rates.

The latest rate hike in May 2023 by the US Fed was a quarter-percentage-point rate increase – the smallest rate hike since last March, and it acknowledged that inflation has finally started to ease. However, if the inflation remains unaffected by the planned hikes, the US Fed may have no choice but to keep increasing rates even further. This could also overturn the already shaky US economy into a recession and cause mortgage rates in Singapore to skyrocket.

What causes mortgage rates in Singapore to rise?

Singapore is a small and open economy, impacted by any significant change in global interest rates. The mortgage rates in Singapore are also strongly influenced by the US Fed rates – the US being the world’s largest economy.

Owing to rapid price gains and continuous rate hikes by the US central bank, central banks in other parts of the world, including the Monetary Authority of Singapore (MAS), have continued their hawkish monetary tightening policy.

Whether or not the US Fed further hikes interest rates will play a major role in deciding the fate of mortgage rates in Singapore. As of now, the US Fed has signalled two more interest rate hikes this year as they continue to fight against inflation.

Whenever there is a Fed rate hike in the near future, the SIBOR and SORA (Singapore Overnight Rate Average) will attempt to predict the interest rate movements and fluctuate more than usual. Both benchmark rates will most likely increase. This means home mortgage rates in Singapore tend to become more expensive as the US Fed continues to raise interest rates.

SORA is the new standard benchmark to compare floating rate mortgage packages in Singapore from 2022 onward. SIBOR and SOR will be totally phased out by 2024. SORA has shown a close link with the US Fed rate, moving up or down in tandem.

Since SORA is a backwards-looking rate and does not depend on international interest rates, it is considered more stable, transparent and accurate than SIBOR.

Will interest rates continue to rise in Singapore?

The interest rates in the US have hit as high as 4.75% with its latest increase and are in line with the market predictions of the Fed rate hitting 5.1%. The Fed officials have also further predicted that interest rates will fall to 4.1% in 2024 and 3.1% in 2025.

If the Fed stops at 4.75%, SORA would be capped around the 3.5%-mark. SORA has historically maintained a gap. The upcoming hikes in the US interest rates after May 2023, if any, are expected to be mild and therefore signalling the beginning of the end of interest rates increasing in Singapore.

In December 2022, the Singapore 3-month SORA rate was 3.09% and expected to reach 3.3% to 3.5% by the end of the first quarter of 2023. As of February 2023, the 3-month SORA rate has hit 3.22%. SORA has continued increasing to a high of 3.61% and expectations for it to stabilise are growing as the US reaches it’s debt limit.

What can homeowners do to tackle increasing mortgage rates?

In a rising rate environment, homeowners should never overcommit on home loan packages and sign their rights away to freely negotiate for the best terms for more than 12 months, especially when the interest rate cycle is turning (like 2023).

In a state of the volatility of the daily SORA, don’t wait too long for your lock-in period to end when interest rates have already increased or get stuck with a high fixed rate when rates are dropping fast.

Homeowners with existing mortgages should review their existing mortgages in terms of pricing, service and loan terms. They should look for opportunities to reprice or refinance their home loan after the lock-in period is over. However, they should first calculate whether it is worth paying the early redemption penalty fee versus the increase in monthly mortgages.

As a current or prospective homeowner, you should always try to over-pay your monthly instalment for a few hundred dollars, if possible. This approach will not only prepare you for higher instalments if the situation comes but also to set aside sufficient savings as a cash “buffer” to adapt to mortgage rate hikes down the road.

Financial prudence is key for anyone planning to purchase a home or refinance a mortgage, especially when some economies face recession fears.

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How has higher mortgage rates affected rental prices in 2023 in Singapore?

The key to determining the rental rate is the housing demand and supply.

Unfortunately, the rental index doesn’t look promising for anyone looking for a property – either to rent or to buy.

After an almost 25% surge in residential rents in 2022, the pain looks set to continue for tenants in Singapore this year. The effect of rising mortgage rates is expected to trickle down to tenants’ budgets.

Key indicatorsChange3Q20224Q2022
Price index+0.4%187.8188.6
Rental index+7.4%137.9148.1
Pipeline supply*-6.8%49,38446,041
Vacancy rate*-0.2% point5.7%5.5%
* figures exclude executive condominiums (ECs)

From the URA data for 3Q2022 and 4Q2022 in the table above, it is clear that the rental index has increased much more than the price index. If supply continues to be low and there are not enough units available, then Singaporeans will have no choice but to cough out more money for their rent.

The rising rental index shows that the current demand for properties has not been satisfied, and there has been no relief in the supply situation in the property market yet.

According to Savills Singapore’s report on the local property market outlook for 2023, residential prices and rents will rise amidst geopolitical tensions and rising interest rates. The rents for private non-landed residential properties are predicted to rise 5-10% year-on-year basis in 2023.

Here’s some good news: While rents of HDB flats and condominiums are not likely to fall drastically in 2023, the influx of new homes could respite some tenants. There could be more housing options and potentially more suburban homes offering affordable rents this year after the construction industry’s steady recovery since the Covid-19 pandemic.

The bottom line is: the rents will keep rising further in 2023, although at a lower rate than in 2022 for both private and HDB rentals.

When will mortgage rates go down in Singapore 2023?

Although 2023 started with mortgage interest rates at a high, industry experts expect the rising mortgage rates to moderate in the second half of 2023. The US Fed has also indicated that while it has more rate hikes up its sleeves, it would not come at an aggressive rate.

Some housing market analysts believe that interest rates will remain below the 20-year peak of last year, while others think that the rates will continue to increase at least in early 2023 until inflation is under control.

If you look closely at the interest rate cycle over the last 30 years, you will realize that we are at or near the peak. From here, the only direction for the interest rates is to go sideways or downwards – unless we are going back to the Great Inflation era of the early 1980s when inflation skyrocketed to 15% and interest rates exploded to over 20% in the US.

But since the US Fed has already indicated signs of softening, it is not likely to happen now.

Once we are at the next peak, the interest rate is likely to pause and come down from there. The only question is “when” we reach there! Buyers can opt for home loan mortgages pegged to a market-based index like a compounded 3M or 1M SORA to take advantage of lower rates towards the end of the year.

Some industry experts believe that the continuous hikes in interest rates in 2023 are unsustainable and may dip the US economy into slow growth, stagflation or a recessionary situation. If this happens, the Fed might have to pause and lower interest rates in response to lower inflation and recessionary conditions.

If the US economy moves closer towards recession, the Fed might have to start cutting rates in the second half of 2023.

What happens in the second half of 2023 is very unclear and largely depends on inflation and mortgage rates!

Simple steps to get the best mortgage rates in 2023

Getting a lower mortgage rate on a home loan can save you a significant amount of money over the loan tenure. Here are some tips to get the best possible mortgage rate as per your financial situation:

Keep a watch on the US Fed rates

In this financial market volatility, mortgage rates are constantly changing. Mortgage borrowers should keep a close eye on the Fed rates to find and lock in a better rate.

Check your creditworthiness

When you apply for a mortgage, your creditworthiness is determined by the bank by reviewing your credit score. Borrowers with a high credit score are likely able to negotiate for a lower home loan rate. Therefore, check your credit score before applying for a mortgage and dispute with the credit bureau in case of any errors.

Compare mortgage loans

Prospective buyers should also spend time with home loan comparisons in order to get the best mortgage deal. You can take help from a qualified mortgage consultant from Dollarback Mortgage, who can assist you in finding the most suitable home loan mortgage package according to your specific needs. They can also negotiate will the banks to ensure a comprehensive mortgage package for your home.

What do our mortgage consultants say?

It is hard to say where mortgage rates will go next, but the rising interest rate climate may result in challenging times ahead. Looking toward 2023, we expect financial market volatility to continue and borrowing costs to remain elevated till the first half of 2023.

Overall, mortgage rates are expected to remain volatile for several months, but any further rate hikes would come at a slower and more deliberate pace.

At the end of the day, financial prudence is crucial for homeowners so they not do not overstretch themselves. It is always a good idea to consult with a financial advisor or mortgage expert to better understand the current market conditions and how they may impact your situation.

The seasoned expertise of mortgage consultants at Dollarback Mortgage can help you arrive at the best decisions and mortgage choices based on your short- and long-term financial goals and assist you at every step of your home-buying journey.

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