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

Posted on 17 Mar 2017
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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

 

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