OCBC joins fixed-rate home loan battle

Bank launches two-year fixed-rate loan, at 1.65 per cent per annum, based on Sibor-linked benchmark

Oct 06, 2017

Siow Li Sen


HOME buyers are getting more financing choices as OCBC Bank jumped into the fray last week with a new mortgage package.

Singapore's second largest bank OCBC last Friday launched a two-year fixed rate home loan based on a new benchmark, called the OCBC Home Rate (OHR). The OHR benchmark is the long-term average of the one-month and three-month Sibor or Singapore interbank offered rate.

The two-year fixed rate is 1.65 per cent per annum and is made up of OHR - currently at one per cent plus 0.65 per cent.

OCBC's latest two-year fixed-rate package is not the lowest in the market but it's much cheaper than its previous two-year fixed-rate package at 2.38 per cent per annum. It still doesn't have a three-year fixed rate deal said to be popular with home buyers looking at rising interest rates.

A banker said typically, whether banks offer two or three-year fixed rates depends on their respective funding costs.

A OCBC spokeswoman said the latest package has several features including a one-time free conversion after the two-year fixed-rate lock-in period ends.

It also allows partial pre-payment of up to 50 per cent of the original loan amount. "Typically, other banks charge a pre-payment fee for partial pre-payment during the fixed period," she said.

Another feature is a reduction of the full pre-payment penalty by 50 per cent, ie, 1.5 per cent to 0.75 per cent, if property is sold during the prepayment period. Typically, other banks charge a 1.25 per cent to 1.5 per cent for full pre-payment during the lock-in period, she said.

Koh Ching Ching, OCBC head of group corporate communications, said its OHR package "appeals to customers who like the transparency of the Sibor benchmark, the ability to pre-pay, and the free one-time conversion in the event of a rate increase. "These features are not found in other fixed rate home loans," said Ms Koh.

Last month, both United Overseas Bank (UOB) and HSBC launched three-year fixed-rate home-loan packages which until then had been mainly the preserve of DBS Bank, the nation's largest housing-loan provider. Bank of China (BOC) also has a three-year fixed-rate package but with varying yearly interest rates.

UOB and HSBC have joined DBS in selling three-year fixed-rate packages of 1.68 per cent for each of the three years, and sales have been brisk amid a buoyant residential market, and anticipation of further interest rate hikes by the US Federal Reserve.

A DBS spokeswoman said the bank continues to see strong demand for mortgage loans.

"Given that home ownership is a long-term commitment, we encourage our customers to understand the full costs and terms of their home loans, and how interest rate changes may impact their monthly repayments, when choosing a home loan package," said a UOB spokeswoman.

The key three-month Sibor, which is used to price home loans, has fallen and has been range-bound at 1.12383 per cent from a year high of 1.13717 per cent reached in July. Still at 1.2383 per cent, it is much higher than the 52-week low of 0.87042 per cent on Oct 7, 2016.

The total number of private homes sold in both the primary and secondary markets reached 6,905 in the second quarter of this year. This was the highest quarterly sales figure since the second quarter of 2013, when 6,945 units were transacted before the total debt servicing ratio framework was introduced in late-June that year.

The 6,905 private homes sold in Q2 2017 reflected increases of 32.7 per cent quarter on quarter and 51.8 per cent year on year.

In the first half of 2017, the transaction volume in both the primary and secondary markets was 12,107 units, up 63.7 per cent from the first half of 2016.