Sibor surge driving mortgage rates up

Sibor surge driving mortgage rates up

Sibor at more than decade-high; home loan rates now at 50% above that a year ago but increases likely to moderate for 2019

Wed, Mar 13, 2019


HOME buyers hoping for a reprieve in rising mortgage rates better not hold their breath as interest rates continue to rise and are now back at levels last seen 12 years ago.

Following the latest round of hikes, the interest rate on mortgages is now some 50 per cent higher than a year ago as the mortgage benchmark, the 3-month Sibor or Singapore interbank offered rate, continues on its northwards trek. The 3-month Sibor is now at almost 2 per cent, up from 1.4 per cent 12 months ago. The last time the benchmark rate stood at 2 per cent was in the last quarter of 2007.

Mortgage rates have increased 0.8 to 0.9 per cent from a year ago to about 2.3 to 2.4 per cent, reckons Darren Goh of mortgage broker MortgageWise.sg.

DBS Bank - the nation's largest home loan provider - is the latest to raise its home loan rates.

Next month, the rate for its most popular fixed deposit home rate (FHR) mortgages - which pegs the home loan to the bank's S$FD - will go up by as much as 40 basis points. This followed a 15 basis points hike in December 2018.

Tok Geok Peng, DBS head of secured lending, said the upwards adjustment of the bank's Singapore dollar fixed deposit (S$FD) board rates reflects the rising interest rates in Singapore since the second half of 2017.

"Since Q1 2018, our S$FD rates have been revised four times, and the FHR has been adjusted accordingly," said Ms Tok.

"We continue to see demand for FHR-pegged home loans with 7 out of 10 new home loan customers opting for FHR, while the rest tend to opt for a fixed rate loan, preferring the certainty it provides," she said.

Explaining the popularity of S$FD-pegged home loans, Ms Tok said deposit rates tend to lag market rate movements and FHR is expected to be less volatile than market rates such as Sibor.

"The corresponding increase in FHR was applied more than six months later compared to a Sibor-pegged loan," she said.

United Overseas Bank was more restrained in adjusting its interest rates last year but it finally threw in the towel and was the first among the three local banks to raise its Singapore dollar fixed deposit (FD) rates in 2019 when it moved last month.

UOB borrowers with mortgages based on FD rates will see sharp hikes in their monthly instalments by as much as 70 basis points.

"We are in an environment of rising interest rates and in line with current market conditions increased our Singapore-dollar fixed deposit rates in February 2019. As a result, loans pegged to fixed deposit board rates have also risen by an average of 0.63 per cent," said a UOB spokesman.

UOB offers different home loan packages to suit different needs such as mortgage loans pegged to Sibor, board rates or fixed rates, he said.

"In the current rising rate environment, fixed rate home loan packages have been popular with our customers as they provide more certainty compared with Sibor and board rates," the spokesman added.

OCBC Bank in December announced average hikes of 55 basis points across the board effective January 2019. This followed a 30-basis point hike on selected mortgage packages in August 2018.

The rate hikes, though unpleasant, appear to be still manageable so far for some borrowers.

John Dasson, who bought his home in 2013, said the rate increases have "not made him jump" because his cash flow is more than adequate.

"When I bought the place, I made sure I could tolerate the increases in interest rates out of my cash flow, said Mr Dasson, who is associate director, wealth advisory with Financial Alliance Pte Ltd.

His latest monthly instalment is slightly over S$3,202, up from about S$2,700 two years ago, he said. His current loan outstanding of S$716,000 has a remaining tenure of 24 years.

Property investors however are taking it differently. Calling the rate increases a "slow boil," investor D Kwek said they are painful because the rent does not cover the mortgage instalment as rents have been falling.

There may however be some relief for borrowers as increases for the rest of this year are expected to moderate.

We are probably close to the end of the US Fed hike cycle, said Eugene Leow, DBS Bank rates strategist.

"Global growth worries and market volatility suggest that further Fed tightening is going to be slow. In fact, the Fed is likely to be on pause for a few more months," said Mr Leow.

"Accordingly, the magnitude of increase that SGD rates are going to exhibit will likely be smaller than that seen in 2018 when the Fed hiked four times," he said.

DBS has projected that the 3-month Sibor will rise to 2.30 per cent by Q3 2019 and remain unchanged into 2020.