US Fed hike to affect Singapore housing loans - PropertyGuru

Local housing loan rates are expected to rise this year, say experts. 

Analysts expect the three-month Singapore interbank offered rate (Sibor), to which most housing loans are pegged, to increase to between 1.45 percent and 1.85 percent by the end of the year, reportedTODAYonline.

This comes as the US Federal Reserve earlier increased its rates by 25 basis points to a range of 0.75 percent to one percent. The Fed predicts two more hikes for this year.

The Sibor hovered at 0.942 percent yesterday (16 March), from 0.940 percent during the previous week, while the three-month Swap offer rate (Sor), which is a benchmark for commercial loans, stood at 0.907 percent, up from 0.890 percent previously.

“The contributing factor to the rise in Sibor and Sor for this year is the rise in Libor (London interbank offered rate), which is due to the expectations of two more rate hikes this year,” said Francis Tan, an economist at UOB. London Interbank Offered Rate, or Libor, is a benchmark rate that some of the leading banks in the world charge one another for short-term loans.

With this, Tan believes the increase in Sibor may cause a strain to borrowers. “The cost side for consumers is going up, as they feel the impact of the rise in interest rates for their mortgages, especially now with the rise in (the) resident jobless rate and weak consumer sentiment on economic growth.”

After hovering at about 2.8 percent for four years, the annual average unemployment rate rose three percent in 2016, revealed the Ministry of Manpower’s 2016 labour market report.

“It is inevitable for local rates to move up,” said CIMB economist Song Seng Wun. “The three-month Sibor and Sor are likely to return to the rates we saw early last year.”

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg

Romesh Navaratnarajah • March 17, 2017

Source: PropertyGuru

Fed rate hike: Expect to pay more monthly on home loans - SRX

Home owners in Singapore can expect to pay a higher monthly instalment on their housing loans, on the back of a rate hike by the United States Federal Reserve.

The US central bank raised its benchmark federal fund rate - the rate banks charge each other for overnight loans - by a quarter of a percentage point on Wednesday.

Given that Singapore interest rates are closely correlated with those in the US, this will tend to push up rates on credit cards, mortgages, vehicle loans and bank savings accounts.

For example, Sibor, or Singapore interbank offered rate, is a benchmark for many home loans here. As it follows US rates closely, a Sibor rise is expected.

Mortgage Supermart Singapore broker Keff Hui said the impact "is overall minimal, as the rate hike has been widely expected and largely priced in".

Ms Regina Lim, JLL head of capital markets research of South- east Asia, agreed, noting that the three-month Sibor base rate has spiked by about 50 basis points to about 0.94 per cent since last November, and the six-month Sibor moved similarly to 1.25 per cent.

The three-month swap offer rate, or SOR, used to price commercial loans, has risen - by about 0.17 to 0.29 percentage point - since the Fed's December hike, and sharper than Sibor's increases which were muted, said Mr Hui.

Also, a rate hike would ultimately result in the US dollar's appreciation which, in turn, would cause the value of the Singapore dollar to drop in relative terms, said Mr Heng Wui Liang, country head of personal finance site BankBazaar.sg. "Any change in the US dollar would impact the SOR, and since SOR and Sibor are directly proportionate... this will have a strong bearing on Sibor."

Ms Lim said: "Benchmark borrowing rates continue to stay at low levels, and banks remain willing to lend up to 60 per cent for development and completed assets." She added that the "all-in-cost" of capital for property investors remains relatively low.

Home loans are competitive as banks battle for market share, said Mr Hui. However, lenders here were tight-lipped when asked if the Fed rate hike would translate into higher interest payment on loans for consumers.

Borrowers can consider fixed rate or fixed deposit-pegged home loans which are "less volatile to interest rate changes and have more certainty in monthly repayments in the initial years", said personal finance website Get.com co-founder Grace Cheng.

Fixed deposit rates also follow Sibor, but analysts do not expect huge movements. Mr Hui said: "Short-term deposit rates may also move higher, but I doubt the impact will overflow onto the longer tenure term deposits."

Mr Heng said deposit rates are not likely to rise as quickly as loans' because "deposit rates are more dependent on the liquidity of the banks, which are currently pretty well-capitalised".

The Straits Times

Source: SRX (17 Mar 2017)