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 bcgroup.com.sg.

 

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 http://www.HousingLoanSG.com

 

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.

 

COPING WITH A DOWNTURN

 

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 http://www.HousingLoanSG.com

 

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