Following the latest US Congress mid-term elections, 1-month SIBOR has hit a new high of 1.63433 this week (as at 7 Nov). This is a run-up from its last trading level at 1.50 range-bound since July and all eyes will be watching will it fall back or move even higher from here. 3-month SIBOR has also risen in tandem to 1.75833.
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Of course, the pressure on interest rates has been building for a while and this is not a direct outcome of the US mid-term result which we know by now has led to a gridlock in Washington with a Democrats-controlled House of Representatives and a Republican-majority Senate. Implications of that is topic for another article but suffice to say much of Trump’s agenda has been pushed through and in fact the next upcoming item in 2019 concerns fiscal infrastructural spending which is bipartisan agenda supported by both parties. Much of the economical momemtum will be sustained through 2019 with trade sanctions the only spanner in the works.
Back to interest rate trajectory. As we have said many times in this blog, banks are privy to ongoing trends in the money market. Wih SIBOR rising to all-time high, it is no wonder we have seen quite a few rate movements by lenders over the past month:
1. StanChart Increased FDR Tranches Across-The-Board (8 Nov)
This has been announced by StanChart back in early October as the bank is required to give a one-month notice to all its home loan customers. Affected StanChart customers would have received the notification letters by now. The increases are as follows:
|FDR Tranches||Old Value||New Value||Increase By||Effective Date|
|48FDR||0.90%||1.10%||0.20%||8 Nov 2018|
|9FDR||0.30%||0.65%||0.35%||8 Nov 2018|
|36FDR||0.72%||0.97%||0.25%||8 Nov 2018|
Most of MortgageWise customers to whom we recommended StanChart’s floating rate packages (the 1% loan) back in 2016 were on 48FDR and would have enjoyed almost two years of super-low average mortgage interest which is just beginning to shoot above 2%. Now may be the best time to review especially for those out of lock-ins.
To be fair, this year all banks have raised their FDR (fixed deposit rate home loans) pegs, in fact some by more than once, as the benchmark 3-month SIBOR has risen from 1.00% at the start of the year to 1.63% now. The increases so far averages 0.30% each round which is palatable vindicating our view on FDR as a more stable mortgage peg than SIBOR. The intensity of increases going forward will depend on how fast SIBOR comes up.
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2. DBS Announced BOARD Rate Increase For Commercial Property Loans
DBS just announced hiking of its EFR (Enterprise Financing Rate) for its commercial DBS property loans from 6.00% to 6.50% come 3 December. Being the “national” bank and likely market leader for commercial property financing as well, this means a large number of commercial office and shophouse owners in Singapore will start to feel the pinch of rising cost of borrowings going into 2019.
Commercial property interest rates behave quite differently from residential rates in that they are priced at much higher levels and each hike is usually in the region of 0.50% at the least. Businesses will start to see their interest rising to above 2.50%-3.00% soon, if not already, should the current trend continues unabated. In fact, we were surprised to see this increase in EFR coming this late part of the year which is kudos to DBS being supportive of local enterprises.
Speak to our team of mortgage consultants who are equally adept in both residental and commercial property loans under personal or company names.
3. Local Banks Raised Fixed Rates Above 2.28%
Since beginning of this month, all three local banks have raised their fixed rate for home loans to new highs of 2.28% to 2.48%. In fact, it has been an unsual few months for us in this business where we have not seen local banks competing so badly on fixed rates with their foreign counterparts. Quite a few foreign banks the likes of HSBC, Bank Of China (BOC), Maybank and even State Bank Of India have been quoting much more competitive fixed rate packages this year and stepping up their promotional drives especially in the last few months. We wonder why.
It seems this can only be explained by the tight liquidity going on in the interbank market where the three local banks, being net lenders, now feel the effect of rising cost of funds more acutely and hence are on deposits acquisition drive. Incidentally they would also benefit in a big way from lending out at higher interbank rates which is reflected in their latest quarterly financial results.
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4. There Is No More Sub-2% Fixed Rate
With Bank Of China just announcing their new higher rates with effect from tomorrow (9 Nov), there is no more fixed rate home loans for private properties at below 2% as of now. The new 2-year fixed rates for BOC has risen from 1.95% to 2.10%, and 3-year fixed rates from 1.95%, 2%, 2% to 2.25% for all 3 years.
This is a scenario we have forewarned since a few months ago when we make the call for homeowners to take early action and lock down fixed rates before they move past 2%. It will be interesting to watch now how the market adjusts to this new psychological high of over 2% lending rates. Indeed, it is unchartered territory for many who are so used to mortgage rates languishing in the 1.30% to 1.80% over the past 10 years.
Speak to us today quickly to explore what is the best option for refinancing home loan going into 2019 where structuring of home loan to achieve a lower blended rate or offset rate becomes more important.
Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest developments in the industry, providing useful mortgage tips, and making sense of rate movements. We seek to build trust with clients over the longer term instead of doing product-peddling for quick one-time deals. That’s why we always present “whole-of-market” perspective including home loan packages that some banks do not pay us.