Singapore expects domestic interest rates to rise in tandem with climbing US rates, which may increase debt servicing costs and affect local home buyers.

“The risk of rising interest rates is a reminder that everyone should continue to exercise caution in their property purchase decisions,” Monetary Authority of Singapore Chairman and Senior Minister Tharman Shanmugaratnam said in response to a parliamentary question on Monday on the impact of rapidly rising US long-term interest rates on the city-state.

The rise in interest rates in the US should be seen in context of a strong recovery in the economy there, which will add some momentum to Singapore’s own economic recovery, he said. Singapore’s economy is expected to grow between 4% and 6% in 2021, after declining 5.4% in 2020 due to the Covid-19 pandemic.

While most buyers should continue to be able to service their mortgage loans, a small percentage of households within the private property market could face cash flow strains, he added. MAS analysis showed that the median household’s mortgage servicing ratio would remain manageable even under a stress scenario of a 2.5%-point increase in mortgage interest rates and a 10% fall in income.

“Buyers should assume that interest rates will rise, and be sure of their ability to service their loans before making long-term financial commitments,” he said.