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Singapore

DBS, UOB and OCBC raise fixed rate home loans to as high as 3.85%

The latest adjustments mean that mortgage rates in Singapore are now likely at their highest since 2008, according to an industry expert.

DBS, UOB and OCBC raise fixed rate home loans to as high as 3.85%

A row of ATMs from various banks at Changi Airport in Singapore. (File photo: iStock)

SINGAPORE: Local lenders DBS, UOB and OCBC on Tuesday (Oct 4) raised their fixed rate home loans, with rates reaching as high as 3.85 per cent.

DBS, Singapore's largest lender, made the first move. A check of its website on Tuesday morning showed four fixed rate packages available, ranging from two to five years. All four are set at 3.5 per cent per annum.

DBS had previously removed all fixed rate mortgages from its website, as it conducted a review following another steep interest rate hike by the US Federal Reserve last month.

The same fixed rate of 3.5 per cent also applies to its two-in-one home loans, which allows borrowers to structure up to half of their loan amount in fixed rates and the remainder under a floating rate package.

DBS last adjusted its home loan rates in end-June. Then, it raised the rates on its two-year and three-year fixed rate packages to 2.75 per cent per annum, while scrapping a five-year fixed-rate package for Housing Board flat buyers.

The bank also introduced a new home loan package last week, allowing new and existing owners of HDB flats earning less than S$2,500 a month to take up a mortgage with POSB at 2.6 per cent per annum. This rate is similar to that of a HDB housing loan.

“We are cognisant that home loans are one of the largest and longest financial commitments that greatly impact a customer’s cashflow. So we are doing more to help our customers to not just own their homes, but also capitalise on opportunities to accumulate cash while they save,” said a DBS spokesperson.

The bank's latest review is “in accordance with the interest rate environment” and its longer-tenure packages will benefit those looking to lock in a fixed interest rate for a longer period.

The bank will continually explore ways to provide our customers more stability through our fixed rates packages programme,” the spokesperson added.

UOB, which was doing a similar review and had temporarily ceased its fixed rate offerings on Sep 23, told CNA on Tuesday afternoon that its two-year and three-year fixed rate home loan packages now bear per-annum interest rates of 3.75 per cent and 3.85 per cent, respectively.

This is up from 2.98 per cent and 3.08 per cent previously.

UOB also offers home loans that combine both fixed and floating rate packages. The all-in or blended rate of such a hybrid loan “tend(s) to be lower”, said its head of group personal financial services Jacquelyn Tan.

For example, if borrowers take half of their loan amount on a two-year fixed rate package at the current rate of 3.75 per cent, and the other half on a floating rate package pegged to the three-month compounded SORA at an assumption of 2.09 per cent, the all-in rate will turn out to be 3.27 per cent, she said.

Such a hybrid loan package typically offers a fixed monthly repayment amount for a set period, while also allowing partial loan repayment for the floating rate portion without penalty.

“This means that when interest rates rise, customers can consider paying down the floating rate portion of their loan to avoid the incremental interest payments, while their fixed rate portion is protected against rising rates,” she added.

“We are continuously monitoring market conditions and will review our home loan packages to ensure they remain competitive,” Ms Tan told CNA in an emailed response.

In line with its peers, OCBC announced later in the day that it would be adjusting its two-year fixed rate package to a rate of 3.5 per cent, up from 2.98 per cent.

It is also re-introducing a one-year fixed rate mortgage of 3.35 per cent, citing demand for a shorter lock-in period among some customers.

“Some of these are customers who plan to sell their properties in the near future, while there are others who believe that interest rates may start to come off from end of next year,” said the bank's head of consumer secured lending Phang Lah Hwa.

“Given this trend in the market, we have decided to re-launch our one-year fixed-rate package, together with our two-year fixed-rate package, albeit at a higher rate due to the current interest environment.

“Our pricing packages strike the balance between offering customers stability and yet giving them wriggle room to sell their property or review their home loan when the opportunity or need arises,” she added.

New fixed rate home loans offered by local banks (as of Oct 4)

  Fixed rate packages
(% per annum)
DBS

2-year, 3-year, 4-year, 5-year: 3.5%

OCBC

1-year: 3.35%

2-year: 3.5% 

UOB

2-year: 3.75%

3-year: 3.85%

Sources: DBS, OCBC, UOB

 

For now, all three banks have left their floating rate offerings pegged to the benchmark Singapore Overnight Rate Average (SORA) unchanged.

DBS' floating rate loan remains at a three-month compounded SORA and a lending margin of 1 per cent per annum, with a two-year lock in period.

UOB is offering a floating rate pegged to the three-month compounded SORA, plus a margin of 0.7 per cent per annum for the first two years, and 0.8 per cent for the third year onwards.

Meanwhile, OCBC's floating rate loans are pegged to the one-month and three-month compounded SORA plus a margin of 0.98 per cent for the first 2 years.

The three-month compounded SORA has risen from 0.1949 at the start of the year to 2.0851 as of Oct 3.

HIGHEST SINCE 2008

Still, the latest adjustments in fixed rate loans mean that mortgage rates in Singapore are now likely at their highest since 2008, according to SingCapital's chief executive Alfred Chia.

Then, mortgage rates were likely at 4 per cent before the global financial crisis hit. The latest rates are also below what home owners in Singapore had to pay in the 1980s and 1990s, when home loan rates hovered around 5 to 6 per cent, said Mr Chia.

Central banks around the world have been tightening monetary policy to combat surging inflation.

The US Federal Reserve, in particular, has been on a rate-hike race to combat inflation at its highest in 40 years. Its latest move – a 75-basis-point rate increase on Sep 21 – marks its fifth rate hike this year, with further increases likely, to rein in soaring prices.

Amid this, banks have been making rapid revisions to their borrowing rates.

“Singapore's interest rates follow closely that in the US. With the Federal Reserve already hiking their rates and openly indicating that they will increase further, the banks are acting in anticipation of these higher rates,” Mr Chia said.

But the lenders may be reined in by competition for now, given how rates have not breached 4 per cent, he added.

Explaining why fixed rate home loan packages have seen bigger adjustments so far, Mr Paul Wee, vice-president of PropertyGuru Finance at PropertyGuru Group, said: “Banks must cover or hedge their exposures against rising interest rates when offering a fixed rate package. The closer the fixed rates are to the current interest rates, the higher the cost of hedging.

“The hawkish stance taken by the US Fed means that it is unclear how high interest rates can go.” 

On the other hand, hedging is not applicable to floating rate packages as the higher rates are passed on to consumers, he added.

Meanwhile, the Singapore Government unveiled a slew of property cooling measures last week, in its bid to moderate demand and ensure prudent borrowing.

The measures, which came into effect on Sep 30, include revised medium-term interest rate floors, a higher interest rate floor for housing loans granted by HDB, as well as a wait-out period of 15 months for private home owners to buy a non-subsidised HDB resale flat.

These rule tweaks serve as a timely reminder to home owners at a time when higher rates are likely here to stay, Mr Chia said.

“I think interest rates are normalising and will stay (this way) for some time ... so the latest measure is a good reminder to home owners - make sure you can afford your home loans.

Source: CNA/sk(ac/rj)
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