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Singapore Rate Spike To Weigh On Property Prices

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A sudden new-year jump in Singapore interest rates threatens to push up mortgage costs and steepen a slide in home prices.

The three-month Singapore interbank offered rate, against which most home loans are benchmarked, has risen 18 basis points to 0.6392 percent this year to the highest since April 2010, driven by a stronger U.S. dollar and new liquidity requirements for Singapore banks.

Short-term interest rates may head toward 1 percent this year as a resurgent U.S. economy could spur the U.S. Federal Reserve to raise borrowing costs, according to United Overseas Bank Ltd. and Maybank Kim Eng Research Pte. A stronger greenback is also making U.S. dollar-denominated debt raised by Singapore banks more expensive to service. The island, which has S$177 billion ($132 billion) of outstanding mortgage debt, posted a 4 percent drop in home prices last year.

Home prices may fall a further 10 percent by mid-2016, while short-term interest rates could top 1 percent this year, more than double the level in 2014, said Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore. “About 30 percent to 40 percent of the price decline could come from the interest rate effect,” he added.

I'm sure the BoE is taking note about what happens if they increase rates and all that wealth that they will destroy. We can't have home prices falling.

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