A home loan price war on the horizon?

Sibor, commonly used by Singapore banks to peg their variable home loan rates, hits its lowest in 23 years

Record-low interest rates could re-ignite the price war for a piece of the home loan pie, industry observers said.

The benchmark Singapore interbank offered rate for three-month Singapore-denominated loans (Sibor) was at 0.44 per cent on Friday – its lowest in 23 years, according to Bloomberg data.

The Sibor is commonly used by Singapore banks to peg their variable home loan rates.

So far, Mr Dennis Ng, founder of mortgage consultancy portal HousingLoanSG.com said that the price war for home loans has gained intensity over the past six months.

“The loan rates offered by banks here have already been cut to the bone, and it will be difficult for the banks to earn sufficient margins should they undercut each other further,” Mr Ng said.

Rates for home loan packages pegged to the interbank rate are likely to continue to fall from the low interest rate environment, observers said.

Currently, OCBC’s first-year rate for the bank’s variable package for HDB flats stands at 1.18 per cent annually. Both UOB and DBS declined to reveal their rates for the period when contacted by MediaCorp.

Analysts estimate the average variable public housing home loan rate for the first year is now between 0.9 per cent and 1.4 per cent.

But they said the current low Sibor rates will not be sustainable in the long-term.

Ms Christine Kuo, senior analyst (financial institutions group) at Moody’s Singapore, said that she does not see a large-scale price war for the banks here.

“However, I would not be surprised if some local or foreign banks or finance companies (start to) offer lower rates to selective customers for a short period of time,” added Ms Kuo.

A DBS spokesperson said “certain rates that are pegged to shorter tenor Sibor or swap offer rates can be particularly volatile”.

Thus, “homebuyers need to ensure that they are able to handle the expected range of fluctuations, particularly if there is a lock-in period”, the DBS spokeperson added.

DBS advised customers who are worried about the volatility of the Sibor rates to go for a five-year fixed rate home loan package, which will offer greater stability in repayment.

This will allow them to enjoy the current low interest rate for the entire duration of the minimum occupancy period for HDB flats, the bank said.

UOB advised new homeowners to remember that buying a home is a long-term financial commitment.

“Regardless of the prevailing interest rate environment, and the first-year rates, home buyers should always calculate their own affordability level to ensure that they are able to service a housing loan over a longer period of time,” a UOB spokesperson said.

Source : Today – 25 Oct 2010

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