Homeowners in Singapore are starting to tighten their belts as they will soon face higher mortgages, thanks to rising interest rates. 

The country’s three largest banks raised housing loan rates in June, following the U.S. Federal Reserve’s decision to increase interest rates by 75 basis points in the same month to cool inflation — its most aggressive hike since 1994. 

DBS raised rates on its two- and three-year fixed packages to 2.75% per annum; OCBC increased its two-year fixed rate to 2.98%; and UOB its three-year fixed rate package to 3.08% per annum. Rates have been on the rise since late last year, when three-year fixed rates were at 1.15%.

Property experts are saying the increase in rates is not surprising.

A housing loan with a rate of about 2% interest is considered “super cheap,” said Christine Li, head of research for Asia-Pacific at Knight Frank.

Homeowners with an existing property would have “enjoyed two years of very low mortgage rates, and now it’s just the normalization (period from) two or three years ago,” she said. 

But residents who own private properties and have their mortgages tied to a bank loan are starting to feel the pinch.

Tan, 34, who works in a software company and wanted to be referred to only by her last name, and her husband, 36, bought a condominium in 2021 for 1.75 million Singapore dollars ($1.26 million). They applied for a SG$1.31 million two-year fixed-rate mortgage from a local bank with 1.1% interest. 

Tan said she initially felt relieved when she heard the news as they would not be affected immediately. But panic set in when she realized their mortgage could increase around the end of 2023 when their fixed-rate ends. 

The couple currently pays SG$4,274 a month for their mortgage and expects it to “go up quite significantly,” she said. 

“What we would have to do is cut back on spending on unnecessary things — [fewer] meals at restaurants, less shopping, and how much wine we buy on a monthly basis,” Tan said.

The situation is similar for Singaporean owners of public housing apartments — known locally as HDB flats — whose mortgages are likewise tied to bank loans, rather than the country’s public housing authority.

Regine, 25, who works as a public affairs executive and wanted to be referred to only by her first name, belongs to the first group. She bought a SG$482,000 four-room resale apartment in 2020 with a five-year fixed rate package from DBS with 1.4% interest.

“We’re still early into our lease, so it is a relief that we locked in a good deal and that we are safe for the next few years,” Regine said. “Interest rates are crazy now.”

“The markets are very volatile now, so we’re hoping that interest rates will stabilize in the next five years and the bank rates will not be higher than HDB rates,” she added. 

When asked about how the couple would be able to cope if interest rates remain high in the coming years, she said they would “still be very comfortable” as they did not spend above their means on the house. 

Knight Frank’s Li estimated that Singapore residents who own public housing could see their monthly mortgages increasing by $200 to $300 with the current rate hike.

But flat owners who opted for a HDB housing loan instead of a bank loan may be in a better situation. 

Their loan comes with 2.6% interest — lower than the bank loan packages.  

Samantha Pradeep, 31, who owns a SG$380,000 five-room flat with her husband, said she felt at ease with their decision to opt for an HDB loan despite bank loan rates being “slightly more attractive” in 2017 when they purchased the house. 

“It was a neck and neck fight between the bank and HDB loan five years ago, but it’s a lot more different now,” she said. “If we had taken a bank loan, it would have affected our finances quite greatly right now.” 

Singapore introduced new measures in mid-December aimed at cooling the country’s red-hot private and residential property market. It raised taxes on second and subsequent property purchases, and imposed tighter limits on loans.

The government also said it will increase the supply of public and private housing to cater to the strong demand, the Ministry of National Development reported in the same month.

In Malaysia, mortgage prices have been relatively stable.

The country’s central bank hiked interest rates on July 6 by 25 basis points, but property experts said the increase will not move the needle much on mortgage prices.

Ng Wee Soon, a Malaysian who owns two investment properties in Johor Bahru that cost about 500,000 Malaysian ringgit ($112,000) each, said the increase in mortgage loans may cost him “about $100 per property.” 

People with multiple properties will have their cash outlay eaten into every month as mortgage rates rise, said Knight Frank’s Li. “But if the rental market is resilient … investment property owners are able to adjust the rental rates to have higher returns on rental yields.” 

However, Ng said with Malaysia’s economy still recovering from the pandemic and the country’s housing surplus, he would rather “absorb the cost of higher mortgages, rather than raising rent.”

— CNBC’s Abigail Ng contributed to this report.