UK mortgage loans fall to 9-year low in May

UK mortgage loans fall to 9-year low in May


(LONDON) UK mortgage approvals fell to the lowest in at least nine years in May, a sign that the housing slump is deepening.


Banks granted 42,000 loans for house purchase, compared with 58,000 in April, the Bank of England said in London yesterday. The result was the lowest since the bank’s series began in 1999. Economists predicted a reading of 51,000, according to the median of 26 estimates in a Bloomberg News survey. House prices fell the most in seven years last month, Hometrack Inc said yesterday.


The UK’s worst property downturn since the early 1990s is threatening to tip the economy into a recession. While Bank of England governor Mervyn King says there will be ‘extremely weak activity’ in the housing market, the fastest inflation in a decade is standing in the way of lower interest rates.


‘For approvals to fall by so much in one month having already collapsed over the last year underlines the ferocity of the housing market slowdown,’ said Alan Clarke, an economist at BNP Paribas SA in London. The report ‘suggests the pace of house price declines will continue or even accelerate and the risks to economic growth have also risen’.


The dearth of credit and slowing economic growth pushed property values down one percent last month from May, the most since records by market researcher Hometrack began.


Trevor Williams, an economist at Lloyds TSB Bank plc, said yesterday’s ‘huge drop’ in mortgage approvals shows first-time buyers have ‘been abandoning the market almost completely’. Home loans in May were about one third of last year’s peak.


UK banks are reining in lending following the collapse of the US sub-prime mortgage market, which so far has cost financial institutions worldwide US$400 billion in losses and writedowns.


Shares of property-related companies such as Taylor Wimpey plc and Bradford & Bingley plc have lost more than two thirds of their value this year. Taylor Wimpey, the UK’s largest homebuilder, said yesterday it is in talks with investors to raise money as it writes down the value of land amid a ‘sustained weak’ housing market.


HBOS plc, the country’s largest mortgage lender, and Bradford & Bingley are also turning to investors to replenish their balance sheets.


‘There’s no end in sight,’ said David Tinsley, an economist at the National Australia Bank in London, who formerly worked for the UK central bank. ‘With inflation remaining elevated, we’re unlikely to see rate cuts. But even if we did, it probably wouldn’t help much.’


Mr King said on May 14 that the country may experience the ‘odd quarter or two’ of contraction. The bank predicted that the annual rate of economic expansion will drop to around one per cent early next year, the lowest since 1992.


Consumer confidence fell 5 points to minus-34 last month, the least since 1990, GfK NOP Ltd said in a separate report. UK services output growth held at the weakest pace since 2002 in the three months through April as business services and finance contracted, the statistics office said yesterday.


At the same time, households are still adding to a record £pounds;1.4 trillion (S$3.79 trillion) in debt. Net consumer credit rose £pounds;1.4 billion in May, the most in three months, and credit card lending increased £pounds;0.6 billion, the Bank of England said yesterday.


In April, the Bank of England lowered the benchmark interest rate for a third time since last December to 5 per cent.


Commercial banks aren’t passing that on to homeowners. The cost of a home loan fixed for two years with a 25 per cent deposit rose to 6.27 per cent in May, the highest since 2000, central bank data shows.


Faster inflation may make the central bank reluctant to lower rates further. Consumer prices jumped 3.3 per cent in May from a year earlier, the most in more than a decade, and Mr King said last week that the rate may exceed 4 per cent later this year.


The bank aims to keep the inflation rate at 2 per cent.


‘The bank’s clearly concerned about inflation in the near term,’ said George Buckley, an economist at Deutsche Bank AG in London. ‘But those concerns should give way to growth worries and next year people will talk about when the bank starts cutting rates.’ – Bloomberg


Source: Business Times

S’pore short rates dive, defying expectations

S’pore short rates dive, defying expectations

Analysts believe yesterday’s big move was due to intervention by MAS


(SINGAPORE) Short-term interest rates plunged yesterday to almost hit a year low, causing some analysts to scratch their heads after saying last week the bottom had been reached.


The three-month Singapore interbank offer rate (Sibor) fell 12.5 basis points to 1.25 per cent yesterday – a shade above the year low of 1.24 on April 22.


Analysts say they believe yesterday’s big move was due to intervention by the Monetary Authority of Singapore (MAS), which tried to cap the rise of the Singapore dollar.


‘The fall in the three-month Sibor may have been partly induced by MAS foreign exchange intervention,’ said Citigroup economist Kit Wei Zheng. ‘Our estimates suggest the Sing dollar has hovered at the strong side of the policy band since the start of the week, which has likely triggered MAS intervention.’


The MAS uses the exchange rate and has a strong Singapore dollar policy to fight inflation, which has reached a 26-year high. The Sing dollar rose to $1.36 against the US dollar yesterday, from $1.38 on Monday, said UOB analyst Ng Shing Yi.


But a strong Singapore dollar attracts capital inflows that put pressure on domestic interest rates, which in turn could whip up inflation further.


‘The main downside risk for three-month Sibor is a strong Singapore dollar,’ said Ms Ng. ‘With annual inflation this year likely to reach 6 per cent, MAS would likely prefer a stronger exchange rate, and that would cap Sibor gains.’


Analysts expect more whipsawing movements as MAS fights inflation with its strong Sing dollar policy while other central banks hike interest rates.


‘However I would not overplay that factor too much as I believe MAS will sterilise most of its foreign exchange interventions to moderate or neutralise the resulting downward pressure on interest rates,’ said Citigroup’s Mr Kit.


‘I doubt very much that MAS would want a further plunge in interest rates that could stoke domestic inflation pressure, especially not a time when headline inflation rates are entering uncharted territory.’


Ultimately, a more important determinant of domestic interest rates is probably foreign interest rates – not just US interest rates, but also rates in other economies that are an important part of the currency basket, Mr Kit said.


Ms Ng expects three-month Sibor to reach 1.50 by year-end. But HSBC economist Robert Prior-Wandesforde sees the rate going in the other direction.


‘We are not expecting a Fed hike before the end of this year and I’m still looking for the three-month Sibor to fall to one per cent over the next few months,’ he said. ‘With MAS thought to keep the Singapore dollar strong, this is encouraging foreign inflows, which in turn are depressing interest rates.’


Source: Business Times

Choose the right mortgage deal to save more

Choose the right mortgage deal to save more


YOU are what you write – if you are a journalist.


After a while, friends start to label you by certain stories you write. Last week, one blithely introduced me to his mother as ‘Grace Ng, the Transparent Mortgage Rates Reporter’.


That bizarre introduction unleashed a torrent of questions from Mrs X, who was about to refinance her fixed-rate mortgage. She was counting on the discomfited Miss TMRR (yours truly) to tell her exactly why ‘everyone says a transparent-rate mortgage is the cheapest’.


The encounter made me realise that even some financially savvy Singaporeans might not be clued in on how to make the most of mortgage packages as interest rates change.


When rates head south, you can benefit by taking up a mortgage linked to publicly available rates such as the Singapore Interbank Offered Rate (Sibor). This benchmark rate is used by banks to determine mortgage rates for home loans, as it is the cost at which banks borrow funds from each other.


Banks such as United Overseas Bank, OCBC and Standard Chartered offer packages with rates linked to the Singapore Swap Offer Rate (SOR), which is made up of the Sibor plus lending costs incurred by the banks.


The three-month Sibor has been falling steadily, dropping from over 3.5 per cent last year to as low as 1.24 per cent in late April this year. This means some customers have been enjoying rates of about 2 per cent for the first few months of their loans. Not surprisingly, many customers have either taken up new Sibor-linked packages, or refinanced from a fixed-rate package to a Sibor-linked one.


But if rates are high and look set to climb higher, it is best to lock in a rate through either a fixed-rate mortgage for a few years, or at least a rate linked to the 12-month Sibor, which is fixed for a full year.


The three-month Sibor was gyrating within a tight range but is now climbing to about 1.43 per cent. The 12-month Sibor has moved up sharply to 2 per cent.


Singapore rates track the United States Federal Reserve rate, currently at 2 per cent. But the latter looks unlikely to climb sharply in coming weeks. Opinions are divided over whether the Fed will raise rates to curb inflation or lower them further to stave off a deep recession in the US.


So what do you do when rates in both the US and Singapore are relatively flat, the local property market is softening and the economic outlook is uncertain?


It depends on the type of customer you are.


New home-buyers will face higher fixed-rate mortgage prices. This is because local and foreign banks alike jacked up their rates last week to an average of about 3.7 per cent annually for three years.


This raises the cost of locking in mortgage rates for several years. It also makes packages with rates linked to the Sibor, which is still relatively low, look more attractive than fixed-rate loans.


If you are an existing customer with a loan whose value is less than $300,000 and you switch to a lower-rate loan, penalties such as cancellation fees could wipe out any savings from refinancing, notes Mr Bryan Ong of mortgage consultancy


But if your loan value far exceeds $300,000, you could still save a great deal by sticking with a Sibor-linked package until the three-month Sibor exceeds 2.5 per cent to 3 per cent, he added.


Many will remember that, just a year ago, such packages were actually more costly than fixed-rate ones. In June last year, for instance, when the 12-month Sibor was 2.56 per cent, DBS’ package stipulated 3.81 per cent for the first year, which factored in a mark-up of 1.25 per cent added by DBS.


Those looking to sell their investment properties in the coming months might want to keep to a three-month SOR loan until they offload their properties, as shorter-term rates are currently lower than long-term ones.


But for those taking a wait-and-see attitude, it might make more sense to take up a 12-month Sibor-linked package, so as to lock in the current low rates. That could give you some peace of mind until the middle of next year, when it will probably be clearer just how bad the economic slowdown in the US and Asia is likely to get, and where rates are headed.


Banks are now differentiating their products by varying the lock-in periods and the penalty fees for cancelling a package within the first year. Some banks offer rates as low as 1 per cent of the total loan quantum, while others charge up to 2 per cent.


Others, like Standard Chartered, have introduced interesting features such as a guarantee that the three-month SOR will not exceed the 2.98 per cent annual rate for the first two years.


Singaporeans like Mrs X will always be quick to leap after the cheapest rate in town. But rather than just eye-balling the current teaser prices, customers should also scrutinise the general rate trends, as well as cancellation penalties, to make sure they get the best package, be it a fixed or floating rate mortgage, all year round.


Source: Straits Times

UK banks, valuers tighten conveyancing

UK banks, valuers tighten conveyancing

Concern that current procedures do not capture discounts and other incentives


(LONDON) Britain’s mortgage banks and property valuers are to tighten up their conveyancing procedures in the wake of a housing downturn that has exposed some sharp practices on newly built homes.


‘Some lenders have been concerned that the valuation and conveyancing processes do not always capture discounts and other incentives that buyers may be able to negotiate with developers when purchasing newly built property,’ the Council of Mortgage Lenders (CML) said in a statement. ‘This may mean that, in some instances, lenders might unintentionally offer a mortgage based on a valuation of a property that is higher than the true price paid for it.’


That has left some buyers of newly built properties more exposed to the risk of negative equity as house prices have tumbled and increased the potential for repossessions.


From Sept 1, lenders will require builders of any newly built, converted or renovated property to disclose any buyer incentives so that the decision to offer a mortgage is based on a reliable valuation of the property, the CML said.


CML members are responsible for 98 per cent of all residential mortgage lending in the UK.


According to Britain’s biggest lender HBOS, the average cost of a UK home has fallen by almost 8 per cent since prices peaked in August but anecdotal evidence and economist forecasts suggest the downturn is still in its early stages.


The CML has said that it expects gross mortgage lending to fall by a fifth in 2008 compared with 2007.


The Royal Institution of Chartered Surveyors, a key trade body that represents many of the conveyancers and valuers who act on behalf of banks in property transactions, said that it would help reinforce the changes by amending its rule book. — Reuters


Source: Business Times

BNP to move all IT services to Singapore

BNP to move all IT services to Singapore


SINGAPORE‘S standing as a major financial centre has won another vote of approval – this time from BNP Paribas Private Bank.

The French bank is consolidating in Singapore its information technology (IT) support services from various parts of the world. It aims to have 120 staff members in the Republic, mainly new hires, by next year.


Mr Michel Longhini, the head of BNP private banking Asia-Pacific, said a key reason Singapore was selected was that it was already a regional headquarters for private banking.


Other reasons include the country’s high level of infrastructure and strong talent pool.


He said the group had looked at other locations, including Europe and Northern Africa. Singapore, however, was the best option.


The private bank’s team will offer software development, support and maintenance for all of BNP’s private banking locations worldwide.


Asia is an important market to BNP, and the size of its Asian private banking business has trebled in the last five years. During this period, BNP’s Asian private banking business enjoyed a strong growth in assets of 25 per cent a year, with the value reaching US$30.3 billion (S$41.49 billion) last year.


Mr Longhini said the bank’s growth rate was higher than that of its competition in Asia, which had been growing by 15 per cent annually.


Currently, BNP Paribas Private Bank has nearly 650 staff members based in Asia spread out in Singapore, Hong Kong, Taiwan, mainland China and India. It recently entered into an alliance with Thai-owned Thanachart Securities to service high net-worth individuals in Thailand.


In line with an increased demand from its clients, BNP is also putting more resources into philanthropic services in Asia.


Mr Longhini said the bank had a specialist team dealing with the Asian charitable sector.



Source: Straits Times

No more cheap mortgages as banks raise rates

No more cheap mortgages as banks raise rates

Hike of up to 1 percentage point for some fixed rate packages to 3.98%

By Grace Ng, Finance Correspondent 


THE days when you could lock in cheap mortgage rates or the first year or two seem to be over, now that banks have quietly jacked up rates for new fixed-rate loans.


Just five months ago, banks were dangling teaser rates on the first year of their fixed-rate home loan packages. Maybank had a package that offered 1.68 per cent, while United Overseas Bank’s (UOB’s) FirstZero product carried zero per cent.


But now, homebuyers would be hard-pressed to find rates fixed on the first year of a mortgage at below 2.68 per cent, as some banks had already raised the rates of certain packages by up to 1 percentage point in recent weeks to as high as 3.98 per cent.


UOB and OCBC Bank have raised rates for their three-year, fixed-rate mortgages to 3.68 per cent from 2.98 per cent. Standard Chartered Bank has raised its rate for its two-year, fixed-rate package to 3.78 per cent a year from about 2.68 per cent.


This means new home buyers will have to grapple with much higher costs of borrowing, if they want the certainty of locking in their interest rates for the next few years.


A new customer will fork out about $3,500 more in interest for the first year on a loan of about $500,000, if the rate has been raised by 0.7 percentage point.


Banks may have turned cautious and are raising mortgage rates amid a slowing property market and an uncertain economic outlook.


They are facing ‘increased credit risks on housing loans’, suggested Mr Dennis Ng of mortgage consultancy portal


The higher fixed rates may prompt more buyers of new homes to take up loans linked to transparent rates that they can easily monitor. These include the Singapore Interbank Offered Rate (Sibor) – the rate at which banks lend to each other – and the swap offered rate (SOR), which is Sibor plus a bank’s lending costs.


Existing holders of home loans, whose fixed or variable rates are up for renewal in the coming months, may also find floating rates more attractive, as the difference between fixed rates and those linked to Sibor or SOR widens.


Customers with loans linked to the 12-month Sibor, which is hovering at about 1.7375 per cent, are still enjoying rates as low as 2.4 per cent that is fixed for a year – a difference of 1.3 of a percentage point compared to some newly-hiked, fixed-rate packages.


Some banks, however, have also started to raise rates linked to Sibor and the three-month SOR, currently at 1.4307 per cent. Some banks have raised their SOR-linked packages by 0.1 of a percentage point, or more, to as much as SOR plus 1 per cent.


DBS Bank has not changed its rates – yet. Market sources say the bank is preparing to introduce new – and higher – rates for both its fixed-rate and Sibor-linked packages in a few weeks.


Still, the banks’ rate increases may raise eyebrows since the Sibor and United States Federal Reserve rates appear unlikely to climb sharply in the coming months.


Market talk that the Fed might soon raise interest rates to curb inflation was quashed last week, with an unexpectedly sharp surge in the US unemployment rate to 5.5 per cent last month.


One banker, who declined to be named, said the Singapore banking industry’s motives for raising fixed rates this time, however, might ‘have less to do with current Fed rates than expectations that Sibor is close to bottoming out’. Thus, market players may now be raising rates to squeeze higher margins from new loans.


A banking analyst said banks had enjoyed a roaring mortgage business in the past year, and some had already hit most of their 2008 targets.


‘So, they may now be focusing on credit quality and growing their margins for any new loans,’ he said.


The question on the minds of home owners is whether this fixed-rate mortgage hike is an ominous signal of an eventual rate hike for all other packages. This may cool the already lukewarm property market further.


Bankers, however, kept mum about their pricing strategy, pointing out instead that the current mortgage rates were still at historical lows.




Banks are raising mortgage rates amid a slowing property market and an uncertain economic outlook. They are facing ‘increased credit risks on housing loans’, suggests Mr Dennis Ng of mortgage consultancy


Source: Straits Times

The only way is up?

The only way is up?


Some economists say short-term rate has bottomed out, but they expect increases to be tiny


By Michelle Tay


THE period of rock-bottom interest rates may be over, with some experts tipping that levels in Singapore are set to head north – but at a gentle pace.


The three-month Singapore Interbank Offered Rate (Sibor) – the level at which banks lend to each other – is at 1.3 per cent. That is still a remarkably modest rate, but it is up from the 12-month low of 1.25 per cent a few days ago.


It is also dramatically lower than the 3.1875 per cent in March last year, before rates began plunging.


Economists expect rate rises to be tiny, but home owners might think it smart to refinance mortgages before rates creep up.


The rates pressure is coming from the United States. The Sibor tends to track US rates, which are tipped to rise by 50 basis points by year end.


Dr Chua Hak Bin, Asian strategist at Deutsche Bank Private Wealth Management, said: ‘I believe the short- term interest rate has bottomed out. Our rates track the US rates quite closely, and there is a sense that the Fed, after a 325 basis point cut, is due to raise rates soon.’


He expects rates to rise to 1.4 per cent in 12 months and to go back to above 2 per cent in three years.


OCBC Bank economist Selena Ling said: ‘We would expect the short-term interest rate to rise to 1.5 per cent by year end. It won’t rise sharply because the Monetary Authority of Singapore (MAS) is still on a tight monetary policy to combat inflation.’


But HSBC economist Robert Prior-Wandesforde sees things differently: ‘We are not expecting a Fed hike before the end of this year, and I’m still looking for the three-month Sibor to fall to 1 per cent over the next few months. With the MAS thought to keep the Singapore dollar strong, this is encouraging foreign inflows, which in turn is depressing interest rates.’


One indicator of where short-term rates might be headed lies in the bond market, where long-term interest rates seem to have spiked.


The 10-year Singapore Government Securities bond yield was 2.73 per cent in the middle of last month, but has now risen to 3.6 per cent.


United Overseas Bank’s treasury research head, Mr Jimmy Koh, said: ‘We have inflation climbing in the region, making long-term rates move up. Over time, this could drag up short- term rates.’


He also noted that central banks in Indonesia and the Philippines have already started raising short-term interest rates.


Deutsche Bank’s Dr Chua said: ‘Long-term interest rates are determined by long-term views on growth and inflation. As risk appetite returns, these might move up faster than the short-term rates because of inflation risks, and the Fed may not be able to move as fast as we hope.’


Whatever the cause, rising interest rates affect everyone, from bank savers to homebuyers and retirees looking for a good return on their cash.


If the Sibor rises, so might bank deposit rates in time to come. A DBS Bank spokesman said: ‘Our rates will move in tandem with market forces.’


Home owners might also think it prudent to switch to a fixed-term mortgage now as rates are linked to the Sibor.


Mr Prior-Wandesforde said ‘it is worth thinking seriously about shifting to a fixed rate’.


He added: ‘Although fixed-term mortgage rates haven’t come down that much during the recent decline in short-term market rates, they also didn’t rise as much as one would have expected during the period of rising short-term rates from 2005 to 2006.’


Source: Straits Times

Bank loans grow at slowest pace in a year

Bank loans grow at slowest pace in a year


(SINGAPORE) Singapore bank loans grew at its weakest pace in a year in April as lending to businesses slowed, providing new signs that sluggish global demand could drag on the economy.



Bank loans in April rose 0.6 per cent to $251.1 billion in April from $249.5 billion in March, the central bank said yesterday, the slowest monthly growth since April 2007 when loans grew 0.2 per cent.


Loans to businesses fell across most industries from manufacturing to financial institutions, although the weakness was offset by the construction industry where loans grew 3.2 per cent.


Most analysts expect loan growth in Singapore to slow this year as a looming US recession slows Asia’s economies.


‘Business activity is definitely slowing down. It could be an initial sign of slower growth,’ said Kit Wei Zheng, a Citigroup economist.


From a year ago, total loans rose nearly 25 per cent from $201.8 billion, mostly boosted by construction where lending grew 1.5 times. The industry has boomed in the past year, supported by the construction of two casinos worth around US$7.7 billion.


Analysts estimate that loan growth at the South- east Asian country’s three banks, DBS Group, Oversea-Chinese Banking Corp and United Overseas Bank is expected to slow to 12-13 per cent this year after expanding 20 per cent in 2007.


However, economists said a recovery in the three-month Singapore Interbank Offered Rate, a benchmark for mortgage loans, would ease the squeeze on banks’ profit margins. The rate fell to 1.1875 in April, its lowest level in more than four years.


Loans to manufacturers fell 1.2 per cent in April to $11.1 billion from March, while lending to financial institutions declined by 3.6 per cent.


Housing and bridging loans to consumers rose 0.5 per cent to $74.6 billion despite a slowing property market, although Citigroup’s Mr Kit said the increase was probably not a result of new transactions but buyers paying off purchases closed previously under a deferred payment scheme. — Reuters


Source: Business Times

Local banks slow down loan activity

Local banks slow down loan activity


Foreign banks step in to fill the gap as their local counterparts become more circumspect in extending loans due to industry limits, writes SIOW LI SEN


A CURIOUS thing is happening among lenders in Singapore. The local banks are slowing down their loans activity while foreign banks have taken up the slack and are increasing their market share.


Latest data from the Monetary Authority of Singapore shows that industry loans at the end of the first quarter grew 6.9 per cent from the previous quarter and 23.9 per cent from a year ago.


Ng Wee Siang, BNP Paribas analyst, has projected that 2008 will see a robust 18 per cent in loans growth, led by building and construction loans.


Loans growth for March was fuelled by broad-based business loans driven by building and construction, up 54 per cent from a year ago and financial institution loans, up 23.3 per cent. Consumer loan growth, however, seems to have peaked.


DBS Group Holdings was the only bank which kept up with the buoyant system growth with loans up 8.5 per cent in Q1 from the previous quarter. ‘This means foreign banks are winning share,’ said Matthew Wilson, an analyst with Morgan Stanley.


Even DBS is expected to see its loans growth moderate for the rest of the year and is unlikely to repeat its 25.2 per cent increase in 2007, said Mr Ng.


‘While the loan pipeline remains healthy, (DBS) management has guided that loan growth is set to moderate,’ said Mr Ng. ‘Management indicated that a 10-20 per cent loan growth is within reach,’ he added.


United Overseas Bank said its first quarter 2008 loan growth was only 1.8 per cent. Its management said that the bank has reached its internal limits for some exposures, and risk management guidelines are curtailing loan growth.


OCBC Bank reported quarter-on-quarter loan growth of 4 per cent and 19 per cent year-on-year. Its chief executive David Conner noted that the industry loans growth – which has been in the above 20 per cent range – is expected to come down. ‘It is bound to taper off,’ he said, adding: ‘It will come down to a low double-digit range.’


It is not surprising that the local banks would become more measured in selling loans given the economic uncertainties.


But this wasn’t supposed to happen. Late last year, some observers thought that 2008 would be the year of the local banks as they would gobble up loans and other banking business at the expense of the foreign banks which had been nipping at their heels.


The thinking was that foreign banks – nursing massive losses at home, and facing diminished capital bases at the group level – would have to pull back on their activities.


Local banks did have some exposure to the US sub-prime loans and collateralised debt obligations but their losses were very small and did not impact their capital.


Local bankers had another reason why they were looking forward to strengthening their position this year in spite of sliding interest rates as central banks eased. Foreign banks are typically able to sell more customer loans in Singapore when interest rates fall as they can borrow cheaply on the interbank.


This time round, local banks thought they would face less competitive pressure from the foreign banks which may be constricted by their smaller capital bases.


But not all foreign banks have been hurt by the sub-prime losses. Even those which have taken hits cannot afford to pull back in Asia which is showing strong growth.


Maybank, Malaysia’s largest bank, which recently released its nine months’ results, said loans growth at its Singapore operations grew 19.2 per cent. And Standard Chartered Bank said its Singapore operations will be expanding by nearly 11 per cent in 2008. Some 500 people will be hired in Singapore across the consumer and wholesale banking and support functions, mainly in sales and risk management positions. The bank employs some 4,700 people here.


In Singapore, liquidity is plentiful and local banks take in more deposits than they can lend out, but they have become more circumspect in extending loans as they are facing industry limits.


Section 35 of the Banking Act restricts property exposure to 35 per cent. Banks also have their own internal exposure limits. The local banks in the past couple of years have increased their loan books mainly by lending to the real estate sector.


Singapore continues to have some mega construction projects over the next few years but it looks like the foreign banks may get a bigger share in financing them.


Two local banks and 13 foreign banks participated in last month’s loan syndication of $4 billion credit facilities for the Sentosa integrated resort development, one of the largest loans ever undertaken in Singapore.


‘The bulls point to the very buoyant Singapore loans growth but only DBS is keeping up with system growth. Foreign banks are increasingly participating, as Asia has never been more important and the local banks are approaching their exposure limits,’ summed up Mr Wilson.


Source: Business Times

Picking the best home loan package

Picking the best home loan package


Be aware of your financial needs and risk appetite while weighing home loan packages, writes HELEN NEO


WHILE owning a home is high on the must-have list for Singaporeans, the fact is buying a property usually means signing on for a mortgage. As banks compete for a larger share of the home loan market, borrowers are sometimes overwhelmed by the multitude of home loan packages, with differing features that cater to the different needs of homebuyers.


Not all homebuyers are savvy about all these features. Thus, it has become challenging for homebuyers to decide which loan best suits their needs. Here we show what is available in the market and discuss the advantages and disadvantages of each type of loan package.


Interbank-pegged vs home loan board rate (variable)


Features of interbank-pegged home loan



Pegged to Singapore Interbank Offered Rate (Sibor) or Swap Offered Rate (SOR) plus margin.



The Sibor or SOR can be easily obtained from the newspapers.



Sibor or SOR will be fixed for a period depending on interest period used and will change at rollover/maturity date.





Transparent: Your home loan interest rate moves in line with the market interest rate.





Volatile: Although interbank rates move daily, interest rates will only be repriced according to the interest period used, eg, for a three-month Sibor repricing is done once every quarter.



Pre-payment and redemption inflexibility: Prepayment or redemption for interbank-pegged packages are usually permitted only on rollover/maturity dates. Otherwise, a break fund cost may be imposed. This applies even if you had taken up a package with no lock-in period.



Administrative hassle: For those using the Central Provident Fund to service their monthly instalments, there are administrative issues to consider. As interbank rates are subject to frequent rate adjustments, this results in frequent changes to monthly instalments. For each change, customers would have to instruct the CPF Board to revise the monthly CPF amount released for servicing the loan. This results in inconvenience to customers, particularly if CPF funds are used in full for the payment of monthly instalments. Customers may need to update the board as often as once every three months.


Features of home loan board rate (variable)



Not pegged directly to any interbank rates.



Derived from overall bank funding costs (including business costs) from different sources. Maybank’s home loan board rate is benchmarked against interbank rates, market conditions, as well as business costs. This may differ for other banks. How often it is revised depends on each individual bank’s review of its portfolio against its benchmarked/reference market rates and business costs.





Not as volatile as interbank-pegged home loan packages.





Not as transparent as interbank-pegged rates. Each bank has its own way of computing its board rate(s).



Multiple board rates: Different board rates may be introduced at different times.


Home loan board rate (variable) vs fixed rates


Features of home loan board rate (variable)



With or without lock-in, there is a margin charged on top of the respective banks’ board rate.



Favoured by rate sensitive customers who also prefer more certainty in rates.



Favoured by investors mostly on no lock-in variable packages so that they can get out of the loan anytime without any penalty.


Features of fixed rates



Banks generally offer a choice of fixed rates for one to three years.



Interest rate certainty during the fixed period.



Favoured by risk-averse customers and those too busy to monitor their loan.


Not all customers will choose the lowest home loan interest rate package since much will depend on the needs and risk profile of the customers. For example, a young couple with no children and few financial commitments may consider taking on more risks compared to another with more financial commitments.


As for the choice between board rates and interbank pegged rates, this is very subjective. Some borrowers do not like the interbank pegged rates due to their volatility, but some like it because it is transparent.


Board rates usually lag behind in adjustment compared to interbank pegged rates because the bank will adjust them only after serious consideration of all factors (including interbank rate movements).


Looking at risk appetite, a person who cannot tolerate risk is likely to select a fixed rate package where they are able to determine with certainty the total monthly instalments they have to pay. Those likely to fall into this category are:



Young couples starting a family with a relatively high level of gearing to manage.



Older borrowers who do not like uncertainty in their financial commitments.


On the other hand, a person is likely to select an interbank-pegged interest rate if he has a higher risk appetite. The interbank rates are currently low and hence attractive; but it is also subject to market forces.


This uncertainty is translated to a different monthly instalment every few months. The effect is a fluctuating financial commitment during the loan tenure. Over time, the averaging effect may neutralise the low interest rates currently enjoyed.


The key is the option to exit the home loan when interest rates are on the uptrend. However, this option is not always available due to considerations such as a lock-in period, claw back period, income stability, and loan quantum.


Our take is that every loan package is designed to meet the needs of a particular customer segment. As a home loan buyer, you are making a decision for a long-term loan of say, 20 to 30 years. Be aware of your own financial needs before committing to a loan. Banks are generally more than willing to explain the differences between various loan packages and to analyse which is more suitable for your needs.


Source: Business Times