The Business Times, 27 June 2022, Mon 6:36 PM
By Kelly Ng
MORTGAGE rates have continued to climb in Singapore as lenders here take their cue from the US Federal Reserve, with some market participants projecting fixed rates close to 3 per cent as inflation forces central banks to keep benchmark interest rates high.
Fixed-rate home loans have been on an upward trend since the start of 2022. Among the local banks, OCBC and UOB’s fixed rates for 2-year home loan packages are at 2.65 per cent per annum.
DBS said it is finalising its new fixed rates for private property owners. The 5-year fixed rate of 2.05 per cent per annum currently published on its website is “exclusively for HDB homeowners”.
About 3 months ago, the DBS rate was 1.65 per cent for a 2-year fixed loan and 1.85 per cent for 3-year loans.
“Many homeowners have never seen mortgage rates this high in the last 15 years since the global financial crisis of 2008,” said MortgageWise.sg’s executive director Darren Goh.
Mortgage Master chief executive David Baey expects banks to raise fixed rates to at least 3 per cent by year-end. Homeowners are rushing to refinance, he said, noting that the company has seen 50 per cent more refinancing enquiries in Q2 as compared to the first quarter.
Redbrick Mortgage Advisory’s associate director Clive Chng expects 2-year fixed rates to move above 2.7 per cent, and 3-year fixed rates to stand between 2.8 per cent and 2.9 per cent in the coming months.
“If the inflation numbers stay high and force the Fed to continue to be aggressive in their rate hikes, then we will probably see this in the next couple of months — if the banks are still offering fixed-rate packages,” Chng said.
The Business Times reported in April that some foreign banks here had suspended fixed-rate options because of the rising cost of funds.
The 3 local banks, however, told BT that their fixed-rate packages are still on the table.
With inflation in the US hitting a 40-year high, the Fed on Jun 15 approved a 0.75-percentage-point raise to the federal funds rate — to a range of 1.50-1.75 per cent — making this its most aggressive interest rate hike since 1994.
The federal funds rate is the target interest rate set by the Fed at which commercial banks borrow and lend their extra reserves to one other overnight.
Singapore’s domestic interest rates are largely influenced by global market movements — and especially by the US, the world’s largest economy.
MortgageWise.sg’s Goh said inflation is likely to stay “sticky for a while” and that there was a “false peak” back in May.
Goh expects the federal funds rate to go above 3 per cent by the end of the year. If that happens, the 3-month compounded Singapore Overnight Rate Average, or Sora, could hit around 2 per cent about 3 months into 2023, taking into account some “laggard effect”.
The metric will likely be slower to respond to rate hikes because it is averaged backwards by 90 days, Goh had previously told BT.
But Wayne Quek, director of Home Loan Whiz, believes the effect would set in faster. He forecasts 3-month Sora to reach about 2.2 per cent to 2.3 per cent by this year’s end.
Figures from the Monetary Authority of Singapore show 3-month compounded Sora at 0.72 per cent as at Jun 27, up from 0.19 per cent on Jan 3.
Banks here peg floating-rate home loans to the Singapore Interbank Offered Rate (Sibor) and Sora. Sibor is derived by averaging the rate at which Singapore banks loan from one another, and is based on future rates at which banks plan to borrow.
Sora is a “backward-looking” benchmark computed from the volume-weighted average rate of actual borrowing transactions in the unsecured overnight interbank Singdollar cash market. Sibor will be phased out by the end of 2024 and replaced by Sora, which is regarded as a less volatile benchmark.
These packages are typically priced using the benchmark rate, which varies, plus the banks’ respective spreads.
Mortgage advisers are treading in a “very delicate situation” without at least 2 more months of inflation data, MortgageWise’s Goh said.
“The last thing you want is to be caught holding the ball — contracted to a high fixed rate — when the music stops, that is, when there is a global recession, and rates come crashing down,” he said.
Representatives from local banks have advised consumers to review affordability before committing to their home purchases amid rising interest rates.
A DBS spokesperson noted that current floating interest rates are generally lower than fixed rates as fixed rates, being forward-looking rates, would price in the Fed rate hikes to a larger extent. The bank also recommended its 2-in-1 home loan, which lets borrowers structure up to 50 per cent of their mortgage in fixed rate and the remainder in a floating rate package.
OCBC’s head of home loans Maryanne Phua said while fixed-rate packages offer stability, consumers should only consider this if they are not intending to pay down their mortgage or sell their property in the next few years.
UOB’s head of group personal financial services Jacquelyn Tan said the bank will continue to offer different home loan options such as fixed-rate loans, floating-rate loans, such as Sora-pegged loans, or a combination of both.
Fixed-rate packages remain suspended at foreign lenders like Maybank and Standard Chartered.
A Maybank spokesperson said: “While we currently do not offer fixed-rate home loan packages, we are constantly reviewing our home loan packages to align with market conditions and business aspirations. Currently, Maybank offers competitive Sora-pegged home loan packages to our customers.”
A Standard Chartered spokesperson said the bank continues to focus on offering floating-rate packages only, also highlighting its Sora-pegged offerings. “We continue to review our packages regularly and adjust them according to market conditions,” she said.
0 Comments