The Straits Times, 25 June 2022, Sat 5:00 AM
By Chor Khieng Yuit
SINGAPORE – Home buyers in Singapore can expect pricier mortgages as local banks have already begun to raise interest rates on loans for Housing Board (HDB) flats.
The move follows a 75-basis-point rate hike by the US Federal Reserve on June 16, which generally paves the way for lenders globally to follow suit.
With Fed chairman Jerome Powell confirming that further rate hikes are likely this year, local mortgage rates may rise further, experts said.
The hikes have already kicked in. OCBC Bank, which previously offered a one-year fixed rate loan package at 2.25 per cent per annum for HDB flats, is revising its package to a two-year fixed rate loan at 2.65 per cent per annum.
Meanwhile, UOB has raised the rates for its two-year fixed rate package to 2.65 per cent, from 2.35 per cent in mid-May.
While DBS Bank has so far maintained a 2.05 per cent per annum rate for its five-year fixed rate package, The Straits Times understands it will be revising the rates for its other fixed rate packages as early as next week.
The revised interest rates for some loan packages are now looking pricier than loans from the HDB, which has been charging an annual rate of 2.6 per cent for more than two decades.
HDB housing rates are reviewed quarterly in January, April, July and October each year, which means the next review is due soon.
The momentum towards raising interest rates kicked in globally after the Fed increased rates to a range of 1.5 per cent to 1.75 per cent in its third straight hike.
Mr Powell said another hike is on the table next month and indicated that rates may keep rising until inflation is tamed.
“Financial conditions have tightened and priced in a string of rate increases and that’s appropriate,” said Mr Powell. “We need to go ahead and have them.”
Interest rate futures suggest that investors expect the US central bank to keep raising rates to a peak of around 3.6 per cent by the middle of next year, according to Bloomberg. This raises the ante for home buyers everywhere, including Singapore.
Mr Clive Chng, associate director of mortgage broker Redbrick Mortgage Advisory, said: “As interest rates go up in the US, it’s only natural that interest rates in the local environment go up as well.”
He said this happened in 2019 when, taking a cue from the US, the three-year fixed interest rate hit 2.88 per cent here. “It has happened before and there is definitely a possibility of it happening again.”
Mr Paul Wee, vice-president of fintech at property portal PropertyGuru, also expects fixed rate interests to keep rising as the Fed maintains its hawkish stance.
“The war in Ukraine and the Covid-19 pandemic have added a higher degree of uncertainty than what normal market conditions see,” he added.
Home owners here will now have to weigh their options.
HDB rates have been higher than what the banks have been offering of late, but this could change as bank rates go up.
Ms Jacquelyn Tan, head of group personal financial services at UOB, said home buyers must think carefully when choosing between the two. Those who take an HDB loan initially can switch to a bank loan, but those who take a bank loan cannot switch to an HDB loan later, she added.
Another option is to look at floating rate packages, said Mr Chng. He expects floating rates to climb only gradually.
DBS and UOB have come up with hybrid fixed and floating rate packages that they say can offer some buffer in a high-rate environment.
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