Singapore banks stop offering SOR-pegged home loans due to low profit margins

Singapore’s swap offer rate (SOR) — a rate signifying the synthetic cost of borrowing Singapore dollars, by borrowing US dollars at similar maturity and exchanging them for Singapore dollars — turned negative last week as funds seeking safety flooded the local market.

This resulted in several mortgage brokers receiving orders from DBS Group and Maybank to stop offering home loans pegged to SORs, with immediate effect.

The three-month SOR hit a new low last Thursday, dropping from -0.0119 to -0.6987, while the six-month SOR also fell from -0.06622 to -0.99258.

“SOR just turned negative. Some banks used to offer SOR pegged packages (but) one by one they either have stopped due to the low profit margin, or switched to offer SIBOR-pegged packages, since they can have higher profit margins from SIBOR packages,” said John Lee, Head of

He believes that while most banks terminated the package, some banks are still offering SOR-pegged products to benefit consumers.

This is “because they are paying for something which is the lowest in the market. And banks offering SOR have minimum profitability,” Lee said.

He added that SOR and SIBOR actually trend in similar directions, with SOR currently at -0.993 and SIBOR at 0.39 percent for three million SIBOR and 0.26 percent for one million SIBOR.

When asked what advice he can give home buyers seeking to acquire for owner occupation, Lee said they should “look out for something which suits their needs and not to think of capital gain, since it is for owner occupation.”

He added that home buyers must consider a home loan package that best suits their needs rather than simply the lowest, “as the lowest might not be the most suited for them.”

Source : PropertyGuru – 15 Aug 2011

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