As the thought leader in all things mortgage in Singapore, we track closely any movement in interest rates amongst lenders. The latest bank to announce a slight revision up to its FDR (fixed deposit rate) home loan peg is StanChart – by a mere 15 basis points increase this time.
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Here’s a closer look at the increases on FDR tranches from SCB home loans:
|Bank||Mortgage Peg||Old Rate||New Rate||Increase By||Effective Date|
Does that signal cost pressures (or the need to acquire more deposits) and foretell similar moves by other banks with FDR mortgage pegs soon? To be honest, we do not have the answer. We have explained in this blog previously that the cost structures of banks are different and lenders also have different motivations from time to time – there are periods whereby one bank become less aggressive in acquiring new loans and another bank picks up the slack in competition. Hence when it comes to funding costs and motivations, it is a “black box” to us. Notwithstanding the general dovishness in interest rate outlook for 2nd half of the year, we noticed some banks have in recent months revamped their high-interest account mechanics for example DBS’s Multiplier Account. It does seem that some banks are out to acquire more deposits.
All eyes are now on US Federal Reserve’s FOMC decision in two weeks’ time – should there be at least a quarter percentage rate cut which is now widely expected by the market (or latest by September), SIBOR the benchmark interest rate in Singapore would likely face some downward pressure. And should FDR home loan pegs still remain stubbornly high or move up further due to cost pressures, perhaps it is time to make the switch from a bank-set mortgage loan peg to market-determined loan peg like SIBOR.
To do that homeowners could simply reprice within their existing bank to a SIBOR package if one is available, to take advantage of the unprecedented low spreads on SIBOR loans unseen in almost a decade thanks to free market compeititon. Alternatively, they could also speakto us to find out who has the most competitive spreads for SIBOR home loans in the market currently.
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Do not get us wrong. We are not discrediting FDR home loan peg which we have been advocating in this blog over the last few years when interest rate cycle had been going up. However, we have maintained our view, since the onset of such FDR home loans in the Singapore mortgage scene from 2014-2015, that when the cycle reverses at some point – SIBOR home loan peg would be preferred as it will come down first! SIBOR is driven by interbank market demand and supply and is not subject to the unilateral decision of any one bank to increase or decrese its BOARD or FDR mortgage peg. And looking at the three possible interest rate trajectories (see below) as presented in a recent article, we think the likelihood of a flat or downward trajectory (2 & 3) looks very real. Still we cannot be 100% sure about this.
We believe FDR home loan peg will also have to come down at some point in a prolonged interest rate decline. However, as it is still so new as a mortgage peg in Singapore where we do not have for example a twenty-year historical data to track the correlation between FDR pegs and SIBOR, it is hard to conclude in a recessionary environment how long a lag it would take before banks will adjust deposit rates down. The fact remains that since inception of FDR home loan pegs – deposit rates which are linked to mortgages are no longer pure “cost of funds” for the banks but take on the nature of a lending index or peg akin to another type of BOARD rate. It is a lever for the bank to increase or lower its interest margin on mortgages over time where it now exercises greater control. We will need to go through a full economic cycle of boom and bust of minimum 10-15 years before we can truly scrutinize this relationship and draw any meaningful conclusions on the appeal of FDR as a mortgage peg over the long-term.
We do have historical tracking charts of FDR home loan pegs for the various banks over a 3 to 5 year period depending on when particular FDR tranches were launched. Speak to our team of consultants to request for a copy for your own bank. And you might just want to take this opportunity to explore who has the most competitive home loan packages out there. Apply for your home loan through us and receive a $150 Refinancing Valuation Fee Offset, or a special rate of $1,800 Purchase Legal Fee (includes stamp duty & gst), both subject to min loan of $500,000. Terms and conditions apply. Speak to our consultants today.
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. Read our clients’ testimonials.