In recent weeks SOR (Swop Offer Rate) has gone into wild swings and going below 1% this week following more dovish comments from Janet Yellen that the US central bank will move very cautiously on interest rate this year due to threats to Amercian growth from a slowing global economy.

We have noticed softening stance from mortgage lenders in the past week as many adjusted fixed rates down somewhat or reinstated earlier promotional rates which presents an opportunity for all borrowers especially commercial property owners to “get on the bandwagon” for fixed rates before interest resume its general uptrend trajectory (in our opinion).

Really what has changed.  Nothing much if you ask me.  As I have said many times in this blog we will not look too much into all the usual “noise” that swings up and down by the month.  What the Fed chief has just announced is once again a non-event to us – there is no difference from its earlier statement in back December 2015 when it hiked federal funds rate for the first time in a decade.  The central bank is always going to thread cautiously on any further rate hikes from this point as it continues to monitor labour market conditions and risk of inflation by the quarter and by the month.  In December the market took Fed’s rate forecast literally to mean 4 rounds of rate hikes one in each quarter in 2016, but we took the position that as long as oil price stays down for a while longer it means inflation will not come up as quickly and there would be no reason to move so aggressively on rates, and we were proven right.  That position has not changed and we still think there will be two rounds of rate hikes this year, possibly in June.

Again the market reads too much into Q1 data and forgot that traditionally the winter months in the first quarter are slow months in terms of economic activity in northen hemisphere especially so coming after a huge spending Easter/Christmas year-end.  Things will pick up again with the arrival of spring from May onwards and talk of rate hikes will again resume in June.  We have also explained way back that oil crisis is in some ways a “manufactured crisis” of a political nature and the moment OPEC gets it act together to cut supply oil price will bounce back and we think that will happen towards end of the year or early next year when enough damage (to western competition) has been done.

Still this current softness in rates present an excellent window of opportunity (we put it at two months) for owners to quickly lock in fixed rate for the longest period if possible.  And it is apt that here at MortgageWise we just launched our commercial property loans advisory service and hence we call out to all commercial property owners who are no longer in any lock-in period – it is high time to do some shopping for fixed rates and hedge the risk for the next few years.

When it comes to commercial property loans, owners usually pay significantly higher spreads than residential mortgages, and if rate hikes resume from 2^nd half of 2016 onwards they will be hard hit with higher interest costs in the midst of a slowing economy in Singapore.  Also there are less optionsfor commercial property owners looking to refinance as not all banks will take on the higher risks of commercial mortgages, many has restrictive guidelines in place.  They also do not have the option of more stable loan pegs like DMR (deposit mortgage rate) unlike residential mortgages.  What most banks offer are commercial property loans pegged to either SIBOR or internal commercial board rate.  For this reason it is imperative for commercial property owners to pay a slight premium and go for fixed rates rather than floating.

TDSR will also apply to SPV (special purpose vehicle) or investment-holding companies (formed for the sole purpose of holding the property where there is no other operating business) when refinancing.  Yes you heard right.  Some may not be aware, TDSR applies to all property types not just residential. Unless the owner of the property is a company with an ongoing core business in which case it will be treated more like a commercial or corporate loan where TDSR framework will not apply.  Speak to our team of experienced mortgage consultants today who can better advise you on your commercial property loan needs.

At MortgageWise.sg, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of home loan Singapore.