Singapore Properties

Singapore Property Market 1H 2018

At MortgageWise, we try to provide our property investor clients with a snapshot of the performance of Singapore residential property market regularly through our own basket of condos which will provide supplementary insights in a more meaningful and personal manner than just a broad-based index from URA. Properties are not created equal and some will rise or fall more than the rest.

Compare All Latest Rates 2018

 

The condos selected in the basket are deemed iconic enough to be representative of prices in a particular precinct that is smaller than a whole central region or outside central region as defined by URA.  For areas outside central region we also tend to pick condos either right at or nearest MRT stations as these tend to be well sought after by investors.  Our basket would allow property investors to see the actual variation in prices over time for a particular group of condos that are fairly well-known in Singapore.  However our illustration is nothing more than simple averages of all transactions done over 6-month periods and in cases where there are less than 5 transactions (marked with an asterisk) do take the reading with a pinch of salt.  We also highlight the highest psf achieved in the period.

We will look at the performance of the basket of condos in the most recent 6-month period, and contrast that with the preceding 6-month.  Percentage variation of more than 5% will deemed significant enough to be highlighted (in blue for increase and in red for decline).

singapore property market 2018

 

The effect of the most recent round of cooling measures in 2018 announced on 6 July will not be seen in this set of numbers. In that announcement earlier in the month, the government has cited that it took just 4 quarters for PPI (Property Price Index) to recover back 9.1% of its total decline of 11.6% in the last 15 quarters as seen below.

PPI property price index singapore 2018 Q2

 

Our basket of iconic condos also largely reflected that trend with most of the average psf prices in blue reflecting solid increases especially for investment-grade condos in district 9 the likes of Cosmopolitan, Rivergate in River Valley or Robertson Quay.  All of the transactions done at these two popular condos favoured by investors are above $2,000 psf in the 6-month period – an impressive record indeed.

Compare All Latest Rates 2018

 

 

We also see average psf (a more reliable indicator than highest psf achieved) prices rise meaningfully for mass market condos all over the island east west or north.  More than half of them register above 5% increase in transacted prices over the 2 periods of study, with the best performer J-Gateway in the Jurong Lake District and Glades in the Tanah Merah/Airport precinct.

 

What will be more interesting is our next property market reporting around end of January 2019 when we will examine if all these prices hold up in the face of the harsh cooling measures.  So stay tuned.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deals unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us.  See our clients’ testimonials.

 

Compare All Latest Rates 2018

 

 

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HDB fixed rate home loan for refinancing

BOARD Rate Makes A Comeback

In recent months, one by one, lenders who offered FDR (fixed deposit rate) home loan pegs in the market started to pull the plug on this all important mortgage peg and replaced them with the traditional BOARD rates, even though some give it a new name like MR (mortgage rate).  One bank even go as far as to replace loans on its existing books from FDR to the new BOARD, hence migrating them in batches over time to phase out FDR completely at some point we gather.

Compare All Latest Rates 2018

 

Is this a good development for the mortgage industry in Singapore?  We think not.

As much as we are paid by lenders for distributing mortgage products in Singapore, we do have a duty to report developments in the industry from rate hikes by individual banks to significant strategy changes like replacement of mortgage pegs.  Hence, we need to voice our conerns here independently as a thought leader in the industry and we do have something to say about this recent development which we see as a step backward.

I believe the biggest beneficiaries from this will be the three remaining banks, still with FDR home loans firmly in offering for their clients be it for new loans or renewals, namely DBS, StanChart and HSBC.  Why do I say that?  There are two reasons and I let me explain shortly.  First it is noteworthy for me to point out that DBS, which pioneered the whole concept of pegging mortgage interest rate to deposit rates back in 2014 (probably a first in the world), has remained the most steadfast and consistent in terms of its mortgage strategy and execution which bodes well for shareholders of the bank.

 

The Withdrawal Proves Its Usefulness

We have long said in this blog that the cost structures and funding strategies of the banks are all different and there is no point speculating whether longer tenure FDR tranche will go up more often or less often than shorter tenure tranches.  Some banks will find it harder to manage FDR than others, ie. the cost implications for raising deposit rates is more real for some than others.  With the recent moves, apparently what we said is true as some banks decided to call it quits for FDR loans.

Compare All Latest Rates 2018

 

However, the irony is this – the very fact that some lenders are finding it difficult to maintain or hike FDR without hitting their costs proves what we have been advocating all this while is correct, that FDR makes for a better mortgage peg than SIBOR or BOARD, when interest cycle is going up.

We do not fully comprehend what is going on behind the scenes for the withdrawal of FDR mortgage peg.  Perhaps there is a change in the banks’ mortgage strategy, with the recent run-up in SIBOR.  Or there are some changes in the management team which brings new direction.  No matter what cause the withdrawal, what is certain is that the market will now perceive FDR to be the preferred mortgage peg even more so than before.  Which leads me to my next point.

 

Those Who Want FDR Will Have To Refinance Out

Those who were on FDR home loans previously and who now like to stay put on the same mortgage peg on renewals would be forced to look elsewhere as their existing banks no longer offer the peg.  Unless they choose fixed rates for repricing, otherwise they would most likely be given the option of switching over to either a SIBOR-based or BOARD-based home loan package.

And instead of total 6 lenders offering FDR in the past, we are now down to half this number who might get bulk of the business going forward.

 

Of course, this is only our opinion and we could be wrong in our assessment.  We also need to put a caveat here – how the individual banks manange their various FDR increases over time will say a lot about who is more dependable as a lender who maintains a fair rate hike policy that is commensurate with the overall increase in market interest rate.  We know of clients who were upset with recent increases in FDR from one bank that come right on the heels of a hike barely just 4 months earlier.

So, it does not always mean that choosing FDR would triumph over BOARD – making sure you pick the right FDR tranche with the right lender is more important.  To this end, it makes perfect sense to use the service of a professional mortgage consultant who tracks the all the changes in the mortgage market closely. Speak to our consultants now.

Compare All Latest Rates 2018

 

Still by and large, for floating rate packages we would still argue for FDR over BOARD or SIBOR for the simple fact that it has proven to be less volatile so far and lenders have largely waited considerable time lags before announcing any unpopular hikes.  For this reason, we hope lenders would bring back FDR home loans at some point when they sense that it can be a viable mortgage tool that works for both homeowners as well as lenders themselves.  Afterall, if you think about it deeply, FDR can really work just like a BOARD rate which morphs into multiple tranches over time.  For example, lenders can break FDR into 50 tranches from 1-month to 50-month fixed deposit to carry the idea to the extreme.  Not every tranche of fixed deposit is going to cost the bank in the same way when they choose to hike it.

The real difference from our perspective is that, as all FDR rates are published publicly on the bank’s website, FDR increases are more visible and hence under greater scrutiny than increases in BOARD rates which are less transparent.  But isn’t that the fundamental reason why the market would prefer FDR over BOARD in the first place?  And also why we would still recommend FDR as the way forward for homeowners in Singapore.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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singapore property market

Cooling Measures 2018 And What Now?

By this time all the major news channels have reported on details of the most recent round of cooling measures in 2018 that caught almost everyone off guard including listed developers whose share price tumbled 15-20% the day after.  Indeed no one saw it coming.

Compare All Latest Rates 2018

 

First for benefit of those who haven’t quite figured out what it all means, we gave a brief summary referencing the press release from MAS’ website:

cooling measures 2018 on ABSD

 

property cooling measures 2018

The key changes would be:

  • Loan-to-value (LTV) for residential properties lowered by 5% points across the board. In general, banks can only lend up to maximum 75% of a property’s valuation (this also applies to HDB properties unless the loan is from HDB).  This means that all buyers of residential properties would need to fork out 5% more equity in the form of likely cash, or CPF before they can buy a property.
  • Those buying a 2nd property for investment would need to fork out even more cash, as the additional tax (ABSD) goes up from 7% to 12% for Singaporeans. This means the total stamp duties payable for a 2nd property would be BSD 3-4% plus 12% or almost 15-16%.  BSD (Buyer’s Stamp Duty) has been earlier revised up as well from 3% to 4% for residential properties valued at $1m and above.
  • Those who are thinking of taking out a 2nd mortgage to buy an investment property would have to fork out a bit more cash as that LTV limit has also been cut by 5% from 50% loan previous to 45% now. But this impact will not be that substantial as most who are buying 2nd property as it is now would have already “de-coupled” on their 1st mortgage to get maximum financing.  Still that means 75% loan after today and the cash quantum required has gone up.
  • Developers are hard-hit by double-whammy this time as not only do they need to cough out more cash in terms of land costs for ABSD which has gone up from 15% to 25%, there is an additional new ABSD tax of 5% levied which is “non-remissible”. These measures are clearly designed to mute demand for land aimed squarely at enbloc fervour – the chief driver for the property upswing started since mid of 2017 and which continues to drive the market this year.

Compare All Latest Rates 2018

 

My purpose for writing this blog is not to repeat what is already ubiquitously reported, but to give you our own unique interpretation on this round of cooling measures which many deemed as “too strong a hand” and what are some things you may want to take note of.

Profitting From Capital Appreciation Is Going To Be Harder

The Singapore government has repeatedly stressed that it has no intention to crash the property market, but needs to keep any exuberance in check by ensuring any increases in prices is in keeping with economic fundamentals and conditions and not a result of any speculative bubble.

Most property analysts are of the view that speculative element is largely absent from the market today.  Still, the government has sited in its announcement that it took only 4 quarters for the PPI (Property Price Index) to recover back 9.1% of its total drop of 11.6% in the last 15 quarters or about 3.5 years!  A pictorial view says it best:

PPI property price index singapore 2018 Q2Source: URA website, press release 2018 Q2 flash estimates

 

What this tells us is that no matter how the Singapore property market is going to scale to new heights going forward, whenever price increases go too quickly, regulatory forces would be quite ready to be unleashed and make it snap back to roughly where it started.  This puts a check or a ceiling on price increases.  And objectively speaking, how much more increases can one expect or profit from here?  Take for example, when a new leasehold development in the East like in Siglap is selling at average $2,000-$2,200 psf, how long would it take for the new owner to reap a profit at $2,500 upwards, if it happens.  That would be a scenario when most prime district 9,10 resale properties would be selling at $3,000-3,500 psf and mass market condos would be out of reach of most Singaporeans at $2,000 psf (A typical family 3-bedder of 800 sqft nowadays would cost $1.6m with a loan of $1.2m requiring $400,000 downpayments and to service a monthly repayment of about $5,400 at average 2.50% interest over 25 years).  And new ECs would have to be launched at $1,500 psf!  Most first-timers could only afford a two-bedders.

We have argued in this blog before – property as an investment makes sense when seen more from a financial discipline perspective than capital appreciation perspective in today’s market.  What we mean is – buying a property forces one to direct his hard-earned money into “forced savings” every month by paying down on a mortgage.  In that sense, even when one manages to sell off the asset at the same price as what he paid for at end of servicing the entire mortgage (exclude inflation, taxes paid, and time value of money), he would have saved up a huge nest-egg for retirement.  Otherwise our inate human nature will natural divert our earnings to capital consumption or consumerism, especially in a cosmopolitan city like Singapore.

 

Rental Demand Continues To Be Weak At High Vacancy Rate Above 7%

Ask any leasing agent and they will tell you the typical number of viewings it would take before a unit is successfully let and lament how it used to be half that average number.  At a macro level, URA’s official vacancy rate has stayed stubbornly above 7% since 2014.  Gone are the days when we are used to vacancy rate at halve that number at 3-4% as a base level. Official numbers is that there are 30,000 completed new units that are vacant.  No wonder you still see many “dark” or empty units at night for new developments all over the island.

singapore vacancy rate 2018Source: URA website, press release for market statistics 2018 Q1

 

Now I also suspect, judging from the falling rentals I have seen at most new developments, this vacancy ratio would have been even higher if not for reduced rents over the years.  Ask any landlord and they can also tell you what they used to be able to command as rental income.

The implication here is that location is vital in one’s purchase decision, in order not to get caught in a situation where there is long vacancy period and one needs to dig into his hard-earned money to service the mortgage interest.  And when it comes to letting a unit, understanding the prospective tenant’s profile is important as well as good old factors like proximity to MRT stations and amenities like groceries and food.

Compare All Latest Rates 2018

 

Cost Management Takes On More Significance

Since profiting from capital upside is going to be much harder (we are not saying impossible but it depends on your entry price), cost savings takes on a more integral role in the whole business of property investment.  This is especially true when interest has just started moving up.  3-month SIBOR has hit fresh highs of 1.62% as at 4 July 2018.

Do you work with a professional mortgage consultant who is there to monitor market trends and watch over your back lest you pay a few more hundreds or even thousands a month to make your bank richer?  You will be surprised, especially for loans above $1m, the costs of unnecessary delays in refinancing by a mere one month can come up to quite a bit.  Contact us if you like to start a professional relationship with your own trusted mortgage consultant.

 

De-coupling Of Property Ownership Becomes Norm

Since 2013 when TDSR and tiered-LTV limits came into effect, we have seen a fair number of clients doing de-coupling of the property ownership at the same time when they refinance their mortgage.  This makes perfect sense as de-coupling of a property is done like a sale from one spouse to another and requires full redemption of any existing loan.  It also allows for defraying of some of the high legal costs involved when banks (not all) provide legal subsidy for the refinanced portion of the loan.  Typically, such de-coupling or part-purchase could set one back by $5,500 to $6,000 as you need two sets of lawyers to act.  Being a client of MortgageWise brings you special privileges like a special rate from our partner law firms that is even below market!

Now de-coupling of the mortgage is a lot easier but not many are aware of it.  Once one of the owners’ name is taken out from the loan, it frees him or her up to get a new property at the new reduced 75% LTV as a 1st mortgage even though this is a 2nd property.  However, as that still attracts ABSB which has gone up significantly by 5%, we do not see much benefit in doing just that.

Overall, with the new cooling measures, the concept of de-coupling will become more widespread and gain traction amongst Singaporean property owners going forward.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

 

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rising interest rate

Interest Rate Rising?

Last week, two banks announced the latest hike to their FDR home loan pegs with Maybank’s FDMR36 going up from 1.40% to 1.80% on 26 Jun, and OCBC finally moving up their 36-month FDR as well from 0.65% to 0.95% effective 2 Aug.  The latter move was correctly predicted by us (on 23 May) as the next likely FDR to be revised up after the recent increase by DBS also in May.

Compare All Latest Rates 2018

 

Has cost of funds went up in the interbank market after the latest US Fed rate hike in June?  We are not quite sure to be honest and as I have mentioned before in this blog, banks will always be privy to any rate movements in the interbank before the rest of the market finds out and it does seem like liquidity is drying up (see graph below) with a strengthening dollar over the past month.  And as of 3 July, 1-month and 3-month SIBOR has went up to 1.44809 and 1.57483 respectively.

FD link rate hikes

 

Here’s a few other noteworthy observations:

1. Fixed Rates Are Going Up

The local banks, which always set the benchmark being market leaders, have moved up their fixed rates from 1.85-1.95% from a month ago to the prevailing range of 1.95-2.18%.  At current moment, there are just less than a handful of foreign lenders still holding on to 2-year fixed rate at 1.75% or 3-year fixed rate at average 1.82%, but not for very much longer.  My take is they would soon catchup after July.

So, for those who concur with the consensus view that rates can only go north from here, and who like to lock down fixed rates at 1.75% level, you would need to act quickly.  Speak to our consultants today who can run the numbers and show you how much you stand to save, especially when we are now offering exclusively to MortgageWise clients our “Zero-Cost Refinancing” option.

Compare All Latest Rates 2018

 

2. Floating Rates Are Also Going Up

We just said that local banks always set the benchmark, especially DBS with access to the largest pool of Sing dollar funding in its CASA (current account and savings account) base of POSB accounts. The bank has just raised its prevailing floating rate from 1.65% to 1.75% throughout on 22 June last month, and other lenders are poised to follow soon.

Incidentally DBS still keep to its old rate of 1.65% for those who signed up directly on its website but with a need to purchase mortgage insurance and some other conditions applicable.  And it is also giving a $500 SIA voucher for applications by this month.  Now not many brokers, perhaps none, would be telling clients about direct promotions by banks for fear of losing the deal.  However, at MortgageWise, we always begin our advisory from a long-term partnership perspective and we have no qualms giving you that “whole-of-market” view of all available packages.  In fact, we think we have even more compelling overall value for you at the moment be it new purchase loan or refinancing.  Let us prove to you with numbers why we think so, and you will likely agree with us.

3. Longer-Tenure FDR Tranches Not Always The Best

I have covered this point in great details in my last blog post, debunking some erroneous views that I read on some mortgage sites that longer-tenure tranche FDR with low “spreads” (technically not the real spreads) makes a better option than 8-month FDR for example.  The recent moves by Maybank and OCBC have proven my point that higher FDR values (with low spreads) can go even higher, because no one really walks into a bank to place a fixed deposit for 36-month, will you?

Compare All Latest Rates 2018

 

We also do not presume to know how the different banks’ Treasuries operate in terms of funding structure and hedging strategies. The only reasonable comparison to make on spreads is when the underlying base is the same like SIBOR home loans.  Here, a spread of mere 0.10% for OCBC home loans in the first year for example, above the 3-month SIBOR, is indeed the lowest spread for all SIBOR loans in the market at the moment.  To some extent, if US Fed rate hikes gain pace, a 3-month SIBOR also has a slight laggard effect than 1-month, though the actual difference in interest savings is arguable over long periods.

At the end of day, remember FDR tranches be it 8-month, 9-month, 14-month, 24-month or 36-month are controlled by lenders just like different tranches of BOARD rates, as they are no longer a pure deposit rate or cost of funds for banks but act as a lever for banks to increase their interest margin.  And let me re-iterate this point once more – for some banks, the cost implications for raising certain FDR tranches is more real than others.  Speak to our consultants who can explain to you more on that and why we believe that, at MortgageWise, we have a better way of selecting FDR tranches.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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FDR, SIBOR, BOARD

Review Of FDR Home Loans

With the recent spate of rate hikes to FDR (fixed deposit rate) home loan pegs since the start of the year (see our reports in this blog), has FDR lose some of its lustre as a more stable and preferred mortgage peg amongst homeowners in Singapore?  Not exactly.

Compare All Latest Rates 2018

 

Naturally, the emotional response to any rate hikes is to baulk at it and cry foul.  However, as the recent increases this year are across-the-board with total of 5 banks moving up their various tranches of FDR (the only bank yet to make a move on its FDR is HSBC), most homeowners have come to accept the increase as broad-based and market-driven.  It is because the prevailing interest rate characterized by SIBOR has gone up first and banks are now simply playing catchup.  Unless one is locked down on a fixed rate, it will not be fair to expect floating rates to behave like fixed rates if the benchmark interest rate 3-month SIBOR has moved back up from 1.12% to 1.50% in the last 6 months.

Before we go on, we need to give a brief history of what is FDR home loans.

 

What Is FDR Home Loans And How Does It Work?

This could likely be a uniquely-Singapore innovation in the mortgage industry first introduced by DBS in Jun 2014 when it started pegging its home loans to a chosen fixed deposit rate tranche (average of the 12-month and 24-month fixed deposit rate for deposits in the band $1,000 to $9,999) and named its peg FHR (Fixed Deposit Home Rate).  Though initially shrugged off by its peers in the industry, it has taken the market by storm and by 2015 all the major mortgage lenders have rolled out their own version of what we refer to collectively as FDR or “fixed deposit rate” home loans – in the order of OCBC, SCB, UOB, MAYBANK and finally HSBC which was the last to launch its 24TDMR (pegged to 24-month fixed deposit) last December in 2017.

How FDR home loan works is that, instead of pegging mortgage interest traditionally to 1-month or 3-month SIBOR which fluatuates on a daily basis as determined by demand and supply forces in the money market, the interest is pegged to a published deposit rate for a particular tranche of fixed deposit as defined by the respective bank.  For example, the latest FDR tranche to be introduced to the market is StanChart’s 36FDR pegged to its 36-month fixed deposit rate, currently at 0.72%.  This rate will change once banks revise its deposit rates like what happened earlier in the year, and the bank will give a one month’s notice in writing before actually moving up the mortage interest rate.

 

How Does It Compare To Other Mortgage Pegs?

Generally, there are three types of mortgage pegs in the Singapore market which are neatly summarized in the chart below:

mortgage pegs comparison

All the eight major mortgage lenders in the market offer SIBOR home loans but only four offer FDR home loans after OCBC replaced its FDR with OHR (OCBC Home Rate) last October.  The latter is somewhat of a BOARD rate except that the bank has indicated that it will take reference on the long-term average of SIBOR, but stop short of giving a pre-defined formula for how OHR will be calculated or set.

 

Compare All Latest Rates 2018

 

How Has FDR Moved Historically So Far?

As banks tend to “close out” a tranche of FDR after it has signed up a good number of mortgage accounts pegged to it, before “opening” a new tranche on a whole different FD tenure, over time it becomes difficult for the market to track the historical patterns.  Not unless you choose to work with a professional mortgage consultant.

At MortgageWise, this is one of the value-add we provide to clients as we monitor very closely all FDR tranches released and closed off by the respective lenders.  To give you an overview, we present here the 5-year historical trendings of the “initial-launched” tranche of FDR from each bank, as that would give the longest history of its correlation with 3-month SIBOR.  Newly-launched or tranches currently in offer will not give any meaningful insights as we will not see any increases yet.

SIBOR vs FDR tracking

 

If you like to see the mapping out of all FDR tranches within the same bank, just ask our consultants for it as it is almost impossible to map out over a dozen tranches on the same chart.  Better yet, work with us long-term as your trusted mortgage consultant and you can access the most accurate mortgage information, along with the latest rates (including special deviated rates from time to time) whenever you like to do a review.

As you can see from the chart, the long-term trending of SIBOR (3-month) is a gradual uptrend in the last 5 years but with a period of softness in the last two years.  That has changed in the final months of 2017 with a strong pickup in rates followed by a V-shape pattern.  We are expecting the longer term trendline to continue with 2 more hikes by US Fed this year and 3 more next year.  Initial-launched FDRs have remained stable for long periods and the broad-based hikes earlier this year is well justified reflecting the strong pick up in interest rate over the last few months.

 

Conclusion on FDR Home Loan

On the whole, lenders have largely kept to their side of the deal where they would calibrate carefully each hike on FDR to follow only after the increase in SIBOR.  You can see from the chart that the recent run-up in SIBOR (3-month) started around October 2016 and it took 1.5 years for SIBOR to move up roughly 40 basis points (from average 0.90% to 1.30% in the period), whereas the broad-based reaction from lenders come as a laggard and some tranches the increase was half of 0.40% (read our other report).

Hence, we maintain our stance that in an environment of rising rates, SIBOR would be the first to move up and FDR will continue to be a laggard mortgage peg.  For those who use the service of a professional mortgage advisor, this laggard effect could be further enhanced by targeting the correct FDR tranche in the market at time of loan application.

Compare All Latest Rates 2018

 

That brings me to another point which I like to make as I read some blogs out there propagating the idea that longer-tenure FDR tranches make a better choice as it comes with “lower spreads”, or that shorter-tenure FDR tranches have more room to go up as they start from a lower base. As there are different cost structures amongst different banks with local banks having access to the largest pool of Sing dollar funding than their foreign peers, it is hard to decipher which deposit tranche will go up more than the rest.  Also, no one really walks into a bank to place fixed deposit for a 36-month tenure, will you?  So logically with a smaller base of deposit accounts on longer-tenures, such FDRs will tend to exhibit more the nature of a mortgage-lending rate than that of a deposit-funding rate to the bank.

The truth is no one really knows how banks would manage the various deposit tranches going forward as they also act as a lever for banks to raise interest margin with the concept of FDR. Some banks may also decide to meaningfully hold back the increase for certain tranches for strategic or competitive reasons.  Case in point – OCBC raised all its FDR tranches in March this year except for its 36-month FDMR, which come as a pleasant surprise for some.

By keeping watch and monitoring closely FDR movements in the market against SIBOR, we do offer our own assessment on what we believe is a much better way to time FDR increases and pick the right FDR tranche for the most interest savings.  Speak to our consultants to find out more.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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US Fed

Fed Hikes And Ups Forecast To 4 This Year

US Fed hiked the federal funds rate to a range of between 1.75% and 2% after its 2-day FOMC, which has already been factored in by the market.  What is a little surprising but not totally unexpected is an upward revision of its forecast from three hikes to four this year.  This means we would see two more rounds of rate hikes after its FOMC in September and December later this year.  This would bring the funds rate to a range of near 2.5% – a whisker away from its long run market-neutral rate of 2.9%.

Compare All Latest Rates 2018

 

“Economic activity has been rising at a solid rate,” said the Fed, a positon that reflects the overall sentiments from committee members who believed that the tax cuts and a tight labour market would spur wage gains and drive inflation further up this year.

Other key highlights from the Fed statement:

  • GDP forecast for 2018 is raised slightly from 2.7% to 2.8%
  • Unemployment to drop to 3.6% by year-end
  • Forecast core inflation to rise up from 1.8% to 2% by year-end
  • Ups forecast of rate hikes from 3 to 4 this year, but maintains forecast of 3 rate hikes in 2019

We see US Fed here showing a resolve to normalize rates and move it quickly up to the longer run forecast of 2.9% by 2019 before it moderates the pace of rate hikes.  This is so as to “get ahead” of any inflation over-runs later which would require aggressive hikes to bring it under control and hence trigger a hard landing.

At the start of the year when most analysts are forecasting 3-month SIBOR (Singapore Interbank Offer Rate) to hit 1.7-1.8% by end of the year, we forecast it to break 2% barrier.  That was based on a scenario of 3 rate hikes from Fed.  With an additional hike in 2018 now, we seemed to be on track for our SIBOR year-end target.  3-month SIBOR is now at 1.51% (as at 6 Jun).

Compare All Latest Rates 2018

 

After June FOMC, we now maintain our forecast that SIBOR will cross 2% by end of 2018 and in-line with US Fed’s forecast, we raise our forecast for the total of number of rate hikes this year from 3 to 4.

If we are right again in our forecast this year, what this means is that by 2019, the prevailing interest rate for mortgages in Singapore would go up to around 2.2% with fixed rate going up to around 2.3-2.5%.  This creates an opportunity now for homeowners to act quickly to lock down fixed rates still hovering in the 1.75-1.80% range, but not for very much longer.

And there is no better time than now to do a quick review of your mortgage and refinance to the best fixed rate package out there with our newly-launched Zero-Cost Refinancing programme.  As long as your loan is above $500,000, and the property valuation is up to $1.5M we will make it absolutely zero “out-of-pocket” expenses when you make the switch, provided of course that there is interest savings to be reaped.  Finer terms and conditions apply and do check out more details here.  Even for those with bigger units and higher valuations, the additional costs is usually $50-$200 for most.

Speak to our very experienced mortgage consultant.  Take action today, especially those who will be out of lock-ins within the next 6 months.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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win big in mortgage loans

Scoring Hat-Trick In Mortgage!

In the run-up to the much anticipiated June rate hike by US Fed, both DBS and UOB have moved up their fixed rates since the start of the month.  OCBC has moved up their fixed rate even earlier.  The fixed rate home loan packages from the three local banks are now as follows:

 

fixed rate home loan singapore jun-2018

 

Note that UOB still has a direct-to-bank promotional package of 2-year fixed rate at 1.85% on their website which ends by 21 Jun, and which comes with a $500 Tangs voucher for loan above $300,000 (note this gift value must be deducted from the loan for purchase cases).  Incidentally, we are likely the only mortgage broker in town that even highlights this to all our clients, as such promotional gifts are excluded for cases referred to the bank by a broker.  We do that as we have operated as a “full-transparency” brokerage firm from day one, working for the long-term benefit of all our clients.

Of course, these are not the only fixed rate home loans out there as we have more than a handful of very active mortgage lenders in the market.  However, as the big three local banks command the lion’s share of the market, most would like to find out what they offer first.  Click below to access the Top 10 lowest fixed rates available in the market at this moment.

Compare All Latest Rates 2018

 

So just how exactly do you score a hat-trick in mortgage?  By locking down the lowest possible fixed rate for the next three years in a row before this rate breaks out above the 2% mark!

Understand that with more than 80% share of the mortgage market as well as being the net lender in the interbank, the local banks always take the lead in setting the direction of interest rates.  We believe the big banks are always proxy to what is going on in the money market and the fact that they have made the move to hike fixed rates to 2% range tell us how is the liquidity situation right now and how they anticipate cost of funds to move over the next few months.  Hence, we are expecting the rest of the players in the market to play catch-up soon and move up their fixed rates to 2% range.  In short, this “window of opportunity” for one to act now is not going to remain for too long.

For those who have been watching interest rate movements, the question that comes to mind now would be how long this upward trend would stay on intact? Would there be a similar U-turn like back in 2016 where 3-month SIBOR hiked to 1.25% at the start of the year but only to tumble all the way back to sub-1% soon after?  Against the backdrop of a global economic recovery not just in the US, the picture might be quite different this time round.  Interest rates for home loans in Singapore might finally break the 2% barrier convincingly and stay up in the 2%-3% range by 2019.  This is in-line with our current forecast for 3-month SIBOR to hit 2% by December this year once Fed hikes the benchmark funds rate at least two more times this year to reach a range of between 2% and 2.25%.  And if SIBOR indeed reaches 2%, what do you thnk would be fixed rates in the market?  (hint: current 3-month SIBOR is at 1.50% and the lowest 3-year fixed rate is at 1.82% average for 3-year period)

Compare All Latest Rates 2018

 

World Cup kicks off in just four days.  How about scoring a hat-trick for yourself before the first match even kicks off by locking down a 3-year fixed rate at below 2% still?  Given that the historical mortgage rates in Singapore over the last 30 years is over 4% (see the 30-year trendline of 3-month SIBOR), no one will dispute that to be able to lock down at below half that rate is indeed a hat-trick.  In fact, for those who are comfortable servicing a higher monthly repayment, I would say this could even be the final chance for one to lock down a cheap source of funds for investment by doing a cashout on an equity term loan.  In a recent interview with CNBC’s “Squawk Box” in May last month, this is what Warren Buffet has to say about the state of the market right now: “If I had the choice between buying the S&P 500 index or buying the 10-year U.S. Treasury, 30-year U.S. Treasury, it wouldn’t take me a nanosecond to go into stocks.”  He also refuted: “This is not one of those times” to concerns that U.S. stocks have soared to record highs in recent years creating another bubble.

 

And now to make the hat-trick even sweeter if you decide to gear up on your loan to go above $500,000 (only for private properties) we have just launched our Zero-Cost Refinancing feature for all MortgageWise clients.  There will be absolutely no out-of-pocket expenses (we will offset it for you) if your property valuation is up to $1.5m and when you choose to refinance through us to one of the five major lenders, subject to finer terms and conditions.  Even for those with bigger properties, the additional out-of-pocket is usually just between $50 to $200.  Do speak to our consultants if you like to score this hat-trick!

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

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SCB Bank Mortgages

StanChart Introduced 36FDR

Just last week, StanChart introduced their 3rd tranche of FDR home loans on 25 May 2018, where all mortgages will now be pegged to the fixed deposit rate of 36-month set at 0.72%, instead of the previous 9-month which will stop by end of May.

This would be the lastest FDR tranche in the market, and comes about 6 months after SCB came out with 9FDR back in Dec 2017.  The time taken to “fill up” a new tranche of FDR seems to be getting shorter.  This duration for a new tranche of FDR to be offered may be different for local versus foreign banks due to the different cost structures.  For local banks, we have observed a new FDR tranche can be offered up to one-and-a-half years typically but we do expect this to be shortened as interest rises.

Compare All Latest Rates 2018

 

There are some arguments we heard that longer-tenure FDR like 36-month would make a wiser choice than shorter ones like 8-month, because the absolute value of the peg is higher hence the spread (or the mark-up above the peg) on the loan would be reduced.  Still, I do not quite fathom this as technically-speaking for FDR home loans, that is not the real spread for the bank which is the actual interest rate charged to borrowers less out the average cost of funds for the lenders.  The real “blended” cost of funds across all funding sources be it deposits or interbank is unknown.  For the three local banks, we can only gauge the growth in interest margin from their quarterly financial results which we do track in this blog.

If 36-month FDR is preferred for their higher peg value, then how does one justify that SCB’s new 36FDR has a value of 0.72% whereas Maybank’s 36FDR has a value doubled that at 1.40%?  There is no point speculating how one bank would manage their FDR versus another and which bank would move up their FDR first.  Rather, what is more certain is this – the bank that just introduces a new tranche of FDR is less likely to want to incur the wrath of its new customers by hiking it so soon.  And it is for this reason that we would recommend SCB’s 36FDR for those looking at floating rate mortgages.  Also, based on historical trends, the bank has further shared that the highest that 36FDR went up to was 0.95% back in Oct 2010 and lowest at 0.42% in Sep 2011.  It is currently at 0.72%.

Compare All Latest Rates 2018

 

However, there is something peculiar about mortgage interest rates in the Singapore market at the moment.  As banks have moved up their floating rates slowly over the last few months, the gap between floating and fixed is now at its narrowest.  In fact, with at least one bank still offering 2-year fixed rate at 1.75% for private property loan amounts above $500,000, the gap is just within 10 basis points! (lowest floating rate for completed properties is now at 1.65%).

Speak to our consultants today as this could be the best time to review your home loan with our Zero-Cost Refinancing benefit for all MortgageWise clients, terms and conditions apply.  Those with no lock-in or with lock-in expiry within the next 6 months, take action now!

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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DBS Bank Singapore

When Will Lenders Hike FDR Again?

Earlier this month on 9 May, DBS revised the board fixed deposit rates from 9 to 12 months affecting the FDR home loans for two tranches – FHR9 and the original FHR (definited as the average between the 12-month and 24-month FD rate).  The changes are as follows:

BankMortgage Peg*Date*Old RateNew RateIncrease By
DBS

 

FHR99 May0.250.500.25
DBSFHR
(ave of 12M & 24M)
9 May0.675
0.35(12M)
1.00 (24M)
0.80
0.60(12M)
1.00 (24)
0.125

* This is the date where the FD rate is adjusted, the FDR hike will only take effect after a 1-month notice by the bank which will be sometime in June.

 

With this latest move and the most recent broad-based hikes in February, almost all the past tranches of FDR home loan pegs offered by all six lenders with FDR home loans since 2014 have moved, except for OCBC’s 36FDMR.  See our review on the last FDR rate hikes in February.

With US 10-year yields breaching the all-important 3% point and staying up, and with at least two or maybe three more rounds of rate hikes by US Fed this year with one upcoming in next month’s FOMC, the upward trajectory of SIBOR seems intact.  At MortgageWise, we usually only adjust our forecast after the June FOMC if need be, and with SIBOR back to where we started the year at – above 1.50% (3-month SIBOR), we are likely to maintain our forecast that it will finally hit the 2% mark in over a decade before the year is up.

Compare All Latest Rates 2018

 

Does this mean that all of us should jump on the fixed rate mortgage wagon?  Yes and no.

The facts have held up FDR thus far to be a reliable and stable mortgage peg and a laggard to SIBOR movements.  On the whole, the increases to FDR peg has been in the region of 0.20% to 0.30% and coming only after a big movement of SIBOR by almost 0.50% in the past year.  And we have observed that it takes approximately a year and a half before lenders would hike a new FD tranche as it takes time to sign up a significant number of loans before any hike would be meaningful enough to lift interest margin.  That said, we would expect the next broad-based hike to happen in early 2019 for the current tranche of FDRs (FHR8, FDPR14, FDR9) on offer from the major banks, as these were launched mostly in Q4 of 2017.  This is also contingent on our forecast that 3-month SIBOR will hit 2% by end of the year which is another 50 basis point climb from the current levels.  However, we do think a few specific FDR pegs might hike much earlier before the year is up and most notably OCBC’s 36FDMR which has not moved since day one of its launch (still at 0.65%) which is kudos to the bank’s commitment to customers and augers well for those signing up for its new OHR home loan peg.

Still, at such snail pace of a mere 0.25% climb per year in FDR, it is not a clear-cut knock-out decision to go fixed yet.  One needs to look at various factors like the need to sell, paydown etc. which would not be available in most fixed rate home loans that come with lock-in periods.  The size of the outstanding loan is also important.  There are at least six factors to consider before deciding on fixed versus floating rate home loan and we have got that covered neatly in another article published in March in this blog.

Compare All Latest Rates 2018

 

Curently the gap between fixed and floating rate is still hovering in the range of 0.15% to 0.25% which predisposes the choice more to fixed in the current interest rate cycle.  We would thus recommend most to go on the lowest fixed rate for loans below $1m.  And to this end we make no distinction between local or foreign lenders, and between big or small banks.  A fixed rate contract is exactly what it is defined as – fixed repayment that one contracts with the bank during the fixed term. There is no need to side-guess which FDR peg will rise up by when and by how much.

But for bigger loans, every basis point savings count and it might still be alright to take a bet on FDR or even OCBC OHR with such snail pace of increases we have seen recently.  Incidentally, the smartest thing to do here might be to sign on to a FDR tranche that is newly-launched which in theory has the least propensity to move up in the near term for reasons we have articulated earlier.

If in doubt, speak to our dedicated consultants today who could do a review on your mortgage and calculate which package yields the most savings over time using our proprietary Interest Simulator.

And for those with no lock-in or lock-in expiry within 6 months, this could be the best time to review as we just launched our Zero-Cost Refinancing benefit for all MortgageWise clients, terms and conditions apply.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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refinancing home loans zero costs

Zero-Cost Refinancing From MortgageWise

I am excited and happy to announce our latest initative for clients – a “zero-cost” option for refinancing with minimum loan of just $500,000. Terms apply.

Since we started our operations back in 2014, we have scored quite a number of firsts in the market as we continually seek to create value for clients who choose to work with us.  We started with a monthly lucky draw where winners walked away with legal fees fully paid for that ended in mid-2017.  We then launched our unbeatable purchase legal fee of $1,800 all-in (inclusive mortgage stamp duty) for private properties up to a purchase price of $3m.  This translates into an immediate savings of $700 (market rate is $2,500 for purchase legal fee) when clients decide to work with us for the same packages from all the banks.

Compare All Latest Rates 2018

 

The picture is now complete with our latest privilege for the refinancing clients.  For those who refinance a home loan of more than $500,000 through us, we provide you with a “zero-cost” option as follows:

  • Enjoy a $1,800 all-in refinancing legal fee from our partner law firms (for standard refinancing transaction only, see our terms).
  • Receive a $250 Tangs voucher on us. No “up to”, no gimmicks.
  • Refinance to one of 5 banks which form 90% of the market: DBS, OCBC, UOB, HSBC & Maybank
  • If your property is a condo unit with valuation of no more than $1.5m or a size of no more than 1,300 sqft (dependant on the bank’s valuation pricing guidelines), we have worked with our bankers from these 5 banks to keep your valuation fee to no more than $450.
  • With a legal fee at only $1,800 you enjoy a savings of $200 from the cash rebate given by the new bank (usually $2,000 for loan above $500,000), and together with our $250 Tangs voucher which helps to offset your costs, the total value created by working with us is $450 which means there is no out-of-pocket expenses when you refinance through MortgageWise!

(see the full set of our terms & conditions)

 

Unlike purchase where one needs to apply for an IPA (in-principle approval) before putting down the option fee for that dream home, we understand the efforts involved in researching for a home loan and coming to a refinancing decision.  It is already such a hassle calling up one’s existing bank to ask for a repricing quote, which incidentally, is what we always encourage our clients here to do at MortgageWise.  Not to mention then there are documents to submit to the new bank.

Besides showing you all the best rates out there including “deviated rates” from time to time, and how easy all this paperwork can be done, we like to level the playing field for all clients who choose to work with MortgageWise, by offering you this “no-cost” alternative.

Now, do not get us wrong.  We are not saying that you always need to switch banks, much to the ire of our bank partners really.  Still in a open market economy and in an information age, the onus is really not on us brokers, but on the repricing banks to make sure they have a competitive offer to retain their customers.  Our job is to provide clients who are seeking for the best rates in the market with the most complete and accurate information and make the process a breeze should he decides to move.

By making it a level-playing field now with transaction costs removed, what is left now is a decision based on the loan features itself and who can provide the best offer on the best terms win the day. This is afterall the essence and beauty of free market which we embraced here at MortgageWise.

So speak to our consultants today and lock down the lowest fixed rates with our zero-cost option! Terms apply.  There is no better time than now to do a review on your mortgage interest costs.

 

Since 2014, MortgageWise.sg has provided thought leadership in the mortgage planning space in Singapore, taking deep dives into the latest trends in the industry, providing useful mortgage tips, and making sense of rate movements. We aim to build trust with clients for longer term partnership and not just do product-pushing for a one-time deal unlike bankers. That’s why we always present “whole-of-market” perspective including packages that banks do not pay us. That’s why many have chosen to work with us in the end notwithstanding the sheer number of brokers and agents out there. See their testimonials.

 

Compare All Latest Rates 2018

 

 

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