Thursday 30 October 2014

Centralised plan to help overstretched borrowers cut debt

Some of them have ended up owing more than their annual incomes
By Mok Fei Fei, The Straits Times, 29 Oct 2014

CONSUMER credit here is in a healthy state overall, although "a small group of borrowers" have over-extended themselves, said Deputy Prime Minister Tharman Shanmugaratnam yesterday.

About 3 per cent of unsecured borrowers have racked up debts exceeding their annual incomes, according to the Monetary Authority of Singapore (MAS).

Unsecured credit includes credit cards, where there is no collateral tied to the loan.

Mr Tharman, who is also the Finance Minister and MAS chairman, was speaking at an event to mark the 10th anniversary of Credit Counselling Singapore (CCS).

"As CCS has found, people fall into debt problems for various reasons. Over-spending, such as on travel and cars, and job-related changes, are the two most common reasons," he said.

Close to two-thirds of these borrowers earn incomes above the median level. More than half have tertiary education qualifications.

To help over-extended borrowers cut their debts, Mr Tharman announced that CCS will offer a centralised repayment solution.

This means borrowers will not have to approach multiple creditor banks to negotiate the reduction of their debts. Instead, CCS will coordinate across all of a borrower's creditor banks to work out a centralised repayment plan.

Rules on unsecured loans are now tighter, said Mr Tharman.

New rules unveiled by the MAS mean that from June next year, borrowers will be barred from getting further credit if their debt exceeds their annual income for three straight months. However, Mr Tharman said financial institutions are encouraged to give borrowers time to repay their existing debts gradually.

Social safeguards are also being strengthened, he added, including stepped-up police enforcement efforts against illegal moneylenders.

Education on the importance of financial prudence will be made available to more Singaporeans.

"It is about helping people avoid getting caught in a spiral of borrowing and avoid the major difficulties that they and their families face when they are saddled with a pile of debts," he said.

Mounting debt is of concern to CCS president Kuo How Nam, who said that the average outstanding debt of a person seeking its help is $84,000 - equivalent to 28 months of the person's disposable income.

He expects more people to turn to CCS, given greater awareness of its services. For the first eight months of the year, 1,509 people sought help from CCS, up from the average of 650 per year from 2004 to 2008 and 1,377 per year from 2009 to last year.

The Association of Banks in Singapore said it is working with CCS to help highly indebted customers, and that financial institutions will contact them with repayment details in the first quarter of next year.

5 reasons that people in Singapore get into debt
The Straits Times, 29 Oct 2014

About 3 per cent of borrowers with unsecured loans have debts that exceed their annual income, Deputy Prime Minister Tharman Shanmugaratnam said on Tuesday.

Speaking at an event to mark the 10th anniversary of Credit Counselling Singapore (CCS), Mr Tharman, also Finance Minister, said nearly two-thirds of borrowers who get into trouble have incomes above the median and more than half have tertiary educational qualifications.

"As CCS has found, people fall into debt problems for various reasons. Over-spending, such as on travel and cars, and job-related changes, are the two most common reasons,'' he said.

Here are five commonly cited reasons:

1. Splurging

Top of the list, said the CCS, is simply splurging. Nearly half of all debtors helped by the non-profit service blame overspending.

2. Job woes

Not far behind are job woes. People who have been retrenched or suffered a pay cut made up 46 per cent of debtors at CCS.

3. Business troubles

Next came business operators who ran into trouble. They used unsecured credit such as credit cards to get themselves back on track - but only wound up with more money woes. CCS said 22 per cent blame business troubles for debt.

4. Medical bills

Another big headache: unexpected medical bills - either for the debtor themselves or someone they know, with 22 per cent citing this factor.

5. Gambling

Gambling is a serious problem too. Just 2 per cent of CCS debtors were dragged into the red by gambling in 2004 - but now the figure has shot up to 17 per cent in the first eight months of this year. But that is down from 31 per cent last year.

Property prices 'not yet corrected'

PROPERTY prices have yet to show a significant correction, noted Deputy Prime Minister Tharman Shanmugaratnam.

He said measures like the total debt servicing ratio (TDSR) have helped strengthen household balance sheets.

There has been some correction in private sector and HDB resale prices over the past four to five quarters, "but there is some distance to go in achieving a meaningful correction, after the sharp run-up in prices in recent years", Mr Tharman said at a Credit Counselling Singapore lunch held at the Ritz Carlton yesterday.

Without a meaningful reversal, he said, property prices would otherwise outpace the growth of household incomes over the long term. Borrowers have turned more prudent in the wake of cooling measures and the TDSR framework. For instance, the proportion of borrowers taking up multiple housing loans fell from about 30 per cent of new mortgages in 2011 to about 13 per cent as of the second quarter this year.

The average tenure of new private mortgages has fallen to about 25 years, against a peak of 30 years in 2012.


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