By Gabriel Chen
Taken from The Straits Times, 16 Sep, 2010
A key Singapore interest rate that determines some mortgage rates has sunk to a new record low, offering the prospect of even cheaper home loans.
The rate at which banks here lend to one another – the three-month Singapore Interbank Offered Rate, or Sibor – is now 0.51 per cent.
It has been hovering around the mid-0.5 per cent levels for the past few months.
In September 2008, it spiked to 2.22 per cent, as banks were afraid to lend to one another for fear of not getting repaid during the global credit crunch.
Sibor, which also affects rates for consumer loans and deposit rates, has been sliding of late.
This has been in line with the trend of interest rates set by the United States Federal Reserve, which are at historic lows. The Fed is continuing its strategy of trying to kick-start the anaemic US economy with cheap credit.
The record Sibor low also comes as the Singapore dollar has been allowed to strengthen since April.
Asia, including Singapore, is seeing major capital inflows, and this puts more liquidity into the system than would otherwise have been the case. The flushed liquidity conditions then puts downward pressure on rates.
A number of banks here offer mortgages with interest rates that are pegged to the Sibor, so there are cheaper home loans in store for homebuyers.
Still, some banks have widened the spreads that they charge above the Sibor.
This reduces the impact that the falling Sibor will have on Sibor-linked packages.
‘Still, by and large, people will be paying less for Sibor-pegged loans,’ noted Mr Nicholas Tan, OCBC Bank’s head of global wealth management.
In the low interest rate environment, some banks have introduced new housing loan products that are undercutting the rates offered by their competitors.
Maybank Singapore, for example, last month launched a new range of home loan products with interest rates that start at below 1 per cent, which is one of the lowest in town.
This intensifying fight for market share based on pricing is causing some bankers here to be concerned.
‘We are afraid of another price war breaking out,’ said a senior banker.
‘With Singapore cooling its real estate market and banks fighting for fewer real estate deals, we are looking at competition being more price intensive.’
But Ms Vibha Coburn, Citibank Singapore’s business director for secured finance, said that even if a price war breaks out, banks are not obliged to take part.
‘I don’t see the necessity of being in a price war,’ she said.
Ms Coburn said banks will have promotions from time to time, but when rates are so low, homebuyers will consider other factors, such as the turnaround time for a loan application.
‘Assuming all the customer’s documents are in place, we can give him the letter of offer in an hour,’ she said.
The low interest rates will not be a ‘pivotal factor’ to attract homebuyers back to the market, said Mr Nicholas Mak, executive director of research and consultancy at SLP International.
He said current home prices and the expected future pricing of properties are more important factors.
Some buyers are expecting prices to drop further and are holding off on making purchases, after the Government recently implemented further measures to cool speculation.
But while consumers benefit from the lower Sibor, it will mean continued lean times for those with bank deposits.
The soft Sibor is also restricting how much Singapore banks, which are net lenders on the interbank market, can charge on new loans.
This hurts their net interest margins, which measure how profitable their lending activities are.
Standard Chartered economist Alvin Liew has been revising his three-month Sibor forecast downwards, projecting rates to be at 0.5 per cent by the end of next year, from 1.5 per cent in his previous forecast.
‘The risk is that there might be more downside revision,’ he said.
The rate at which banks here lend to one another – the three-month Singapore Interbank Offered Rate, or Sibor – is now 0.51 per cent.
It has been hovering around the mid-0.5 per cent levels for the past few months.
In September 2008, it spiked to 2.22 per cent, as banks were afraid to lend to one another for fear of not getting repaid during the global credit crunch.
Sibor, which also affects rates for consumer loans and deposit rates, has been sliding of late.
This has been in line with the trend of interest rates set by the United States Federal Reserve, which are at historic lows. The Fed is continuing its strategy of trying to kick-start the anaemic US economy with cheap credit.
The record Sibor low also comes as the Singapore dollar has been allowed to strengthen since April.
Asia, including Singapore, is seeing major capital inflows, and this puts more liquidity into the system than would otherwise have been the case. The flushed liquidity conditions then puts downward pressure on rates.
A number of banks here offer mortgages with interest rates that are pegged to the Sibor, so there are cheaper home loans in store for homebuyers.
Still, some banks have widened the spreads that they charge above the Sibor.
This reduces the impact that the falling Sibor will have on Sibor-linked packages.
‘Still, by and large, people will be paying less for Sibor-pegged loans,’ noted Mr Nicholas Tan, OCBC Bank’s head of global wealth management.
In the low interest rate environment, some banks have introduced new housing loan products that are undercutting the rates offered by their competitors.
Maybank Singapore, for example, last month launched a new range of home loan products with interest rates that start at below 1 per cent, which is one of the lowest in town.
This intensifying fight for market share based on pricing is causing some bankers here to be concerned.
‘We are afraid of another price war breaking out,’ said a senior banker.
‘With Singapore cooling its real estate market and banks fighting for fewer real estate deals, we are looking at competition being more price intensive.’
But Ms Vibha Coburn, Citibank Singapore’s business director for secured finance, said that even if a price war breaks out, banks are not obliged to take part.
‘I don’t see the necessity of being in a price war,’ she said.
Ms Coburn said banks will have promotions from time to time, but when rates are so low, homebuyers will consider other factors, such as the turnaround time for a loan application.
‘Assuming all the customer’s documents are in place, we can give him the letter of offer in an hour,’ she said.
The low interest rates will not be a ‘pivotal factor’ to attract homebuyers back to the market, said Mr Nicholas Mak, executive director of research and consultancy at SLP International.
He said current home prices and the expected future pricing of properties are more important factors.
Some buyers are expecting prices to drop further and are holding off on making purchases, after the Government recently implemented further measures to cool speculation.
But while consumers benefit from the lower Sibor, it will mean continued lean times for those with bank deposits.
The soft Sibor is also restricting how much Singapore banks, which are net lenders on the interbank market, can charge on new loans.
This hurts their net interest margins, which measure how profitable their lending activities are.
Standard Chartered economist Alvin Liew has been revising his three-month Sibor forecast downwards, projecting rates to be at 0.5 per cent by the end of next year, from 1.5 per cent in his previous forecast.
‘The risk is that there might be more downside revision,’ he said.
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