Sibor dive triggers fresh battle in mortgage rate cuts
Fixed or floating toss-up comes to the fore, as SGD borrowing benchmark hits new lows on Fed rate cuts
Wed, Mar 25, 2020
VIVIEN SHIAO
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BANKS are revising their home loan offerings by increasing spreads in their floating rate packages while lowering their fixed rates as the Singapore inter-bank offered rate (Sibor) plunged in response to the Fed's two off-cycle rate cuts in March.
Among the banks that have moved include Citibank, HSBC, UOB and OCBC, with more expected to change their rates as interest rates are likely to remain low on the back of a global economic slowdown.
This comes amid weak sentiment with housing loans on a downward trend for more than a year now, given cooling measures put in place to stem a huge surge in housing prices on cheap debt.
Clive Chng, associate director of Redbrick Mortgage Advisory told The Business Times that banks are adjusting rates to stay competitive, but at the same, are "aware to not exaggerate the impact of Covid-19".
Banks will try to keep fixed rates at its current levels or lower them a little further, but with the margins already squeezed, there is a limit to how much they can be lowered, he said.
"We don't foresee a race for the lowest rates at this time," he added.
As of Monday, 3MSibor stood at 1.011 per cent, down sharply from 1.627 per cent on March 3, before the earlier Fed announcement.
Banks have also cut their Sibor projections for 2020 since then. Maybank economists Chua Hak Bin and Lee Ju Ye now expect 3MSibor to be 0.6 per cent by end-2020, near levels last seen during the global financial crisis. This was cut drastically from their earlier projection of 1.6 per cent.
They also do not expect the Monetary Authority of Singapore's policy decision - pushed forward to March 30 instead of April - to materially move the Sibor rate.
"Sibor may have adjusted more quickly because of the drastic cut in the Fed funds rate during the last two moves," said Mr Chua. "With Sibor rates falling, home loan rates will likely continue sliding in tandem."
In line with this, several banks have already revised both their Sibor-pegged rates as well as fixed rates.
UOB has upped the spread of its Sibor-pegged loan rates that are locked in for the first two years, from 0.2 per cent in the first year and 0.25 per cent in the second year, to 0.5 per cent throughout the loan term.
UOB's fixed loans, on the other hand, dipped to 1.75 per cent for the two-year lock-in period, from 1.80 per cent previously.
OCBC has also raised the spread of its Sibor-pegged loan rates to 0.48 per cent and 0.52 per cent for the first and second year respectively, up from 0.25 per cent and 0.3 per cent initially. Fixed loan rates fell from 1.78 per cent to 1.75 per cent for the two-year lock-in period.
HSBC is among the banks with the biggest changes in rates when it comes to its fixed loans. It slashed its rate to 1.72 per cent from 1.8 per cent previously.
As for Citibank Singapore, it has also lowered its fixed rates while hiking its floating rate spreads to between 0.23 to 0.53 per cent, in line with the fall in Sibor.
DBS, which holds the biggest market share of mortgages here with almost a third of Singapore's home loan market share, does not have Sibor-pegged rates. Instead, its floating rate is pegged to its prevailing eight-months Singapore dollar fixed deposit interest rate. There are no changes to both its floating and fixed rates as yet.
With the falling Sibor, Redbrick's Mr Chng observed that there has been a lot more interest in Sibor-pegged mortgage packages among home owners in the past few weeks.
He said: "We have found that clients tend to gravitate towards floating rates if the difference between a fixed and floating is about 0.30 per cent, but there are still a myriad of factors to consider before taking the plunge into floating rates."
Some may prize certainty over potential cost savings, while others may look at other features offered by banks in their loan packages to limit risks, given the global economic volatility, he explained.
For instance, DBS has enhanced its new HDB home loan packages with a complimentary insurance protection plan which provides customers with six-month coverage against unemployment or accident. As such, banks are still seeing a mix of both floating and fixed interest rate packages being taken up.
Maybank Singapore and UOB said that traditionally, home owners preferred fixed rates for its certainty and better cash flow planning. But with the changing outlook, this may no longer hold true.
Alan Yet, Head of Consumer Finance, Maybank Singapore, said: "Due to recent interbank interest rate movements, customers have taken a renewed interest in floating-rate packages pegged against interbank rates like the Sibor."
For Citibank, however, it is the reverse. Its customers tend to choose floating over fixed rates, but now are favouring fixed rates due to the uncertain outlook.
Roy Phua, head of Mortgage Business, Citibank Singapore, said: "In the recent year, interest rate movements have been volatile given the changing geopolitical and economic forces, and the various events that have occurred, so we have seen more customers choosing fixed rates as they want to have the certainty of a rate that they are comfortable with."
As for DBS, its head of secured lending Tok Geok Peng said that the bank has not seen a recent surge in enquiries on home loan refinancing even with all the changes in the external environment.
She said: "As a home loan is a long-term financial commitment, we advise our customers to choose home loan packages based on long-term needs, instead of the short-term interest savings due to current interest rate volatility."
Regardless of which type of loan customers prefer, banks concur that housing loans are expected to be soft this year. It was mostly flat from a month ago in January, but prior to that, it had fallen for 12 straight months.
With the economy expected to be hard hit by the virus outbreak, industry watchers also warn that home owners should set aside sufficient funds for unexpected situations or if interest rates rise on a faster-than-expected recovery.
Most banks here have offered some form of relief for retail customers such as principal repayment moratoriums or waiver of late fees if they have issues with their mortgages during this period, with the latest being HSBC.
When it comes to mortgages, Redbrick's Mr Chng advised customers to not speculate on interest rates in times of uncertainty. "Trying to time the market is like trying to catch a falling knife; you might be risking too much for too little in return," he pointed out.
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