Will Interest Rates Rise Today – SINGAPORE — Average mortgage rates have nearly doubled here in the past six months as a global effort by central banks to fight inflation with higher interest rates takes its toll on local consumers.
Property analysts believe that further increases in housing costs are on the way, especially after the United States Federal Reserve announced its biggest hike since 2000 on Wednesday (May 4).
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The sudden increase in borrowing costs has led analysts and banks to warn home buyers to set aside enough savings as a “buffer” and seek new loan packages or arrangements if necessary.
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For two-year loans, the average rate across Singapore banks rose from 1.15 percent in December last year to 2.25 percent in May, according to Redbrick Mortgage Advisory, a mortgage broker that compares interest rates from different banks.
For three-year fixed-rate debt, the December rate was 1.15 percent, and in May, this doubled to 2.5 percent.
Loans with floating interest rates referenced to benchmarks such as the three-month Singapore Interbank Offered Rates (Sibor) and the Singapore Overnight Rate Average (Sora), also rose, according to Redbrick.
The three-month Sibor increased from 0.43% to 1.05% while the three-month Sora increased from 0.15% to 0.30% compared to the previous quarter.
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Sibor and Sora are benchmarks used, for example, by banks here to price real estate for property buyers.
The increase in home loan rates increased significantly in the last two months compared to the previous four months. While the two-year mortgage rate increased to 0.25 percent from 1.15 percent in December 2021 to 1.4 percent in March, it increased by 0.85 percent to 2.25 percent in May.
Mr Nicholas Mak, head of research and consultancy at property firm ERA Realty, said mortgage rates have been rising for the past six months as interest rates in Singapore fluctuate in line with global interest rates.
This is because Singapore’s central bank, the Monetary Authority of Singapore, controls inflation by controlling the country’s exchange rate against its main trading partners, and does not directly set interest rates.
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Interest rates in Singapore, and around the world, were as low as they have been at the end of last year, said Mr Mak.
“When Covid started two years ago, it was expected that there would be a recession, so to save the economy around the world, the big banks kept interest rates low. But interest rates (expectedly) have risen since inflation started to rise. Mr. Nicholas Mak, head of research and communications at real estate firm ERA Realty”
“When Covid started two years ago, it was expected that there would be a recession, so to save the economy around the world, the central banks kept interest rates low,” said Mr Mak. “But there have been expectations that interest rates will rise since inflation has started to rise.”
But earlier this year, as economies around the world opened up and people started spending more, central banks raised interest rates to reduce demand and reduce pressure on prices.
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As Singapore’s economy, including its capital market, is closely linked to global trends, this meant that Singaporean banks raised their interest rates, including their lending rates.
The sharp rise in mortgage rates over the past two months is partly due to worsening inflation around the world, fueled by inflation caused by Russia’s invasion of Ukraine and the reaction of central banks to raise interest rates.
The US Fed’s half a percentage point hike on Wednesday was watched closely because America is the world’s leading economy and the US dollar is the “reserve currency”.
“Some banks have been adjusting interest rates higher after the Fed’s announcement,” said Mr Steven Tan, chief executive officer of real estate agency OrangeTee & Tie. “Interest rates are likely to continue to rise due to persistent inflation.”
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For example, Mr Tan predicts that two-year mortgage rates will rise from the current 2.25 per cent to a record high of 2.75 per cent.
Ms Jo’An Tan, associate director of Redbrick Mortgage Advisory, expects three-month Sora rates to rise from 0.3 percent to around 1 percent in the coming months, and the three-month Sibor rate to jump from 1.05 percent. up to 1.6%.
Banking and property analysts have told TODAY that home owners must first ensure they have enough cash to be able to cope with any change in mortgage rates.
One of the important reasons is that some banks have been changing the terms of their packages. For example, Mr Tan said many foreign banks have recently stopped offering fixed rates.
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“It’s always good for them to go back to their bank to check their current package status,” he said.
Mr Nelson Neo, head of home finance solutions at DBS Consumer Banking Group, said borrowers should set aside enough money “as a buffer in case interest rates rise or any other unforeseen circumstances”.
Agreeing, Ms Maryanne Phua, head of Home Loans at OCBC Bank, said borrowers should review their housing plans.
“For consumers with existing loans, it is beneficial to review their existing loans periodically, taking a holistic approach to the pricing, service and terms of their loans,” he said.
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When reviewing their current loans, homeowners can consider refinancing, which means paying off their existing loan and replacing it with a new one.
Responding to TODAY, a spokesperson for Maybank Singapore said that its customers can approach the bank again if they wish to repay the loan after the closing time.
Mr Neo from DBS said home owners who want to refinance their home loan are “encouraged to approach their existing banks to check the terms of their home loan, and whether there will be any fees, such as early redemption”.
Ms. Christine Sun, senior vice president for research and analysis at real estate firm OrangeTee & Tie, said that while refunds may be accompanied by penalty payments, they may be necessary in the long run if the difference in interest rates is large enough.
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“They must calculate whether it is worth paying the fine, compared to the increase in the monthly bills they pay,” he said.
Mr Mak from ERA Realty added that it may be worth paying off part of the loan now, assuming the homeowner has enough savings.
“That way, they won’t have a large outstanding debt,” said Mr. Mak. “Because interest is charged on any outstanding loan.”
For example, a savings account where a borrower parks their savings may pay 0.5 percent per month, while the interest rate on a home loan may increase by a much larger percentage.
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“If you are paying a high loan (interest) and your savings account interest rate is very low, you can consider paying off part of the loan.”
Mr Paul Wee, vice president of FinTech at PropertyGuru Group, said borrowers can also look at restructuring their loans, such as extending their loan tenure or consider using additional Central Provident Fund (CPF) funds to provide housing loan assistance.
“They can also consider future plans, such as planned retirement, family plans, for example, and build on these needs in their (loan) plans,” he added.
For prospective home buyers, whether they choose a fixed rate or a floating rate loan depends on their risk appetite, as both packages have their pros and cons.
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Mr Mak said that traditionally, mortgage rates, although fixed for the borrower, are usually set at a higher level than that of floating rate mortgages.
“Depending on the borrower’s appetite, borrowers say they’ll take a bet and stick with a floating rate in the belief that it won’t go up that much… there’s no right answer.”
Ms. Tan from Redbrick said borrowers should look at the long term and not the rates in front of them. This is because floating rates can rise above the fixed two-year rates in that two-year period.
“Currently, one can choose between floating interest rates of 0.95 percent or fixed interest of 2.25 percent,” he said. “The question one must ask before making a decision is how high interest rates will go.”
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Banks also offer the option for customers to choose to have fixed and floating rates in their pockets to “increase risk”, said OrangeTee & Tie’s Mr Tan.
For example, DBS Bank has a package where borrowers can park part of their loan amount under a fixed rate package while the rest will be under a floating rate package.
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