reporter2
23-03-22, 10:06
Singapore mortgages may rise as much as 0.75% this year following Fed hikes, consultants say
Mar 22, 2022
MORTGAGE rates in Singapore could be raised 3 times this year, by 25 basis points each time, according to mortgage advisors polled by The Business Times.
Their projections come after Federal Reserve chairman Jerome Powell's commitment on Monday (Mar 21) to double down on inflation in the United States.
"If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well," Powell said before the National Association for Business in Washington, DC.
The US Fed this month lifted interest rates for the first time since December 2018: from near zero to a range of between 0.25 per cent and 0.5 per cent, representing a hike of 25 basis points.
Most policymakers believe the neutral rate to be around 2.4 per cent to 2.5 per cent.
Singapore's domestic interest rates are largely influenced by global market movements - and especially by the US, which is the world's largest economy.
DBS senior rates strategist Eugene Leow said the passthrough from higher Fed rates to short-term rates here is "typically significant".
Leow said the rise in Singapore dollar rates tends to lag those of USD rates, but added that floating mortgage rates could see "meaningful increases" in the coming quarters.
Local banks did not respond specifically to BT's queries on how they will move on interest rates, noting only that pricing packages are constantly adjusted in view of market conditions. But BT has seen a letter from a local bank advising that rates would go up from this month.
UOB's head of group personal financial services Jacquelyn Tan expects rates here to rise but said the interest rate environment will "remain uncertain in the coming months" as the extent and timing of monetary policy tightening is still unclear.
OCBC's head of consumer secured lending Phang Lah Hwa advised consumers to review the affordability of their home purchases, given the rising rates.
Mortgage advisors are expecting the 3-month compounded Singapore Overnight Rate Average, or Sora, which has hovered around 0.24 per cent to 0.25 per cent in the past month, to hit about 0.8 per cent by July and possibly cross 1 per cent before the end of 2022.
Three-month Sibor, or the Singapore Interbank Offered Rate, which was around 0.63 per cent as at Mar 14, could rise as high as 1.2 per cent by July and 1.7 per cent by end of the year, said Darren Goh, executive director at MortgageWise.sg.
"It looks more aggressive now. It all hinges on the Fed's actions at the next FOMC (Federal Open Market Committee) meetings in May, June and July. I'm basing (my forecasts) on 2 to 3 more hikes of 0.25 per cent each before July," Goh said.
He added that the 3-month Sora will likely be slower to respond to rate hikes because it is averaged backwards by 90 days, resulting in a "retarding effect".
Wayne Quek, director of Home Loan Whiz, said he expects the 3-month Sora to reach 1.25 per cent by the end of 2022, excluding the respective banks' fixed spreads.
In Singapore, banks peg their floating-rate home loans to Sibor and Sora. Sibor is derived by averaging the rate at which Singapore banks loan from one another. Sibor is currently widely used to price derivatives, corporate loans and government and corporate bonds, in addition to housing loans. It will be phased out by the end of 2024 and replaced by Sora, which is regarded as a less volatile benchmark.
While Sibor is based on future rates at which banks plan to borrow, Sora is a "backward-looking" benchmark computed from the volume-weighted average rate of actual borrowing transactions in the unsecured overnight interbank Singdollar cash market.
https://i.imgur.com/vLBIL1Z.png
As for fixed rates, mortgage advisors believe increases will not be as significant as this year's expected interest rate hikes have mostly been priced in. Fixed rates started inching up here at the end of last year, with banks citing upward pressure due to rising cost of funds. "If the US rate hikes keep up, we will probably see fixed interest rates cross the 2 per cent-mark by mid this year," said Redbrick Mortgage Advisory's associate director Clive Chng. The DBS rate is currently 1.65 per cent for a 2-year fixed loan and 1.85 per cent for 3-year loans.
Both Chng and MortgageWise.sg's Goh said interest rate movements in 2018 could be instructive for this year's outlook.
"The last time the federal funds rate hit 2 per cent, the 3-month Sibor in Singapore went to 1.7 per cent and the 3-month compounded Sora reached 1.3 per cent. That should give us a fairly good gauge of where interest rate in Singapore is heading by the end of the year," Goh said.
"The question is: Will the Fed go all the way with a total of 7 hikes this year?"
Goh cautioned against reading the Fed's comments "too literally", noting that the central bank has to consider multiple uncertainties over the next few months, including how protracted the Russian-Ukraine war gets and whether we will see another variant of concern in regard to the pandemic.
Chng, on the other hand, noted that high inflation was not a major part of the equation in 2018; whereas last year, consumer prices in the US rose 7 per cent, representing the highest rate in 4 decades.
"If anything, one might expect that interest rates would move more aggressively this year. That said, there are still many uncertainties, and raising rates that fast might result in a potential recession," Chng said.
He advised mortgagors and prospective homeowners to err on the side of caution and move into fixed-rate packages to hedge against rate increases.
Quek is also largely recommending fixed rates, noting that most banks are still charging less than 2 per cent for 3-year fixed-rate packages. "It will be a tough decision, as many homeowners who are on floating-rate packages are paying less than 1 per cent for the past couple of years," he said.
https://www.businesstimes.com.sg/banking-finance/singapore-mortgages-may-rise-as-much-as-075-this-year-following-fed-hikes
Mar 22, 2022
MORTGAGE rates in Singapore could be raised 3 times this year, by 25 basis points each time, according to mortgage advisors polled by The Business Times.
Their projections come after Federal Reserve chairman Jerome Powell's commitment on Monday (Mar 21) to double down on inflation in the United States.
"If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so. And if we determine that we need to tighten beyond common measures of neutral and into a more restrictive stance, we will do that as well," Powell said before the National Association for Business in Washington, DC.
The US Fed this month lifted interest rates for the first time since December 2018: from near zero to a range of between 0.25 per cent and 0.5 per cent, representing a hike of 25 basis points.
Most policymakers believe the neutral rate to be around 2.4 per cent to 2.5 per cent.
Singapore's domestic interest rates are largely influenced by global market movements - and especially by the US, which is the world's largest economy.
DBS senior rates strategist Eugene Leow said the passthrough from higher Fed rates to short-term rates here is "typically significant".
Leow said the rise in Singapore dollar rates tends to lag those of USD rates, but added that floating mortgage rates could see "meaningful increases" in the coming quarters.
Local banks did not respond specifically to BT's queries on how they will move on interest rates, noting only that pricing packages are constantly adjusted in view of market conditions. But BT has seen a letter from a local bank advising that rates would go up from this month.
UOB's head of group personal financial services Jacquelyn Tan expects rates here to rise but said the interest rate environment will "remain uncertain in the coming months" as the extent and timing of monetary policy tightening is still unclear.
OCBC's head of consumer secured lending Phang Lah Hwa advised consumers to review the affordability of their home purchases, given the rising rates.
Mortgage advisors are expecting the 3-month compounded Singapore Overnight Rate Average, or Sora, which has hovered around 0.24 per cent to 0.25 per cent in the past month, to hit about 0.8 per cent by July and possibly cross 1 per cent before the end of 2022.
Three-month Sibor, or the Singapore Interbank Offered Rate, which was around 0.63 per cent as at Mar 14, could rise as high as 1.2 per cent by July and 1.7 per cent by end of the year, said Darren Goh, executive director at MortgageWise.sg.
"It looks more aggressive now. It all hinges on the Fed's actions at the next FOMC (Federal Open Market Committee) meetings in May, June and July. I'm basing (my forecasts) on 2 to 3 more hikes of 0.25 per cent each before July," Goh said.
He added that the 3-month Sora will likely be slower to respond to rate hikes because it is averaged backwards by 90 days, resulting in a "retarding effect".
Wayne Quek, director of Home Loan Whiz, said he expects the 3-month Sora to reach 1.25 per cent by the end of 2022, excluding the respective banks' fixed spreads.
In Singapore, banks peg their floating-rate home loans to Sibor and Sora. Sibor is derived by averaging the rate at which Singapore banks loan from one another. Sibor is currently widely used to price derivatives, corporate loans and government and corporate bonds, in addition to housing loans. It will be phased out by the end of 2024 and replaced by Sora, which is regarded as a less volatile benchmark.
While Sibor is based on future rates at which banks plan to borrow, Sora is a "backward-looking" benchmark computed from the volume-weighted average rate of actual borrowing transactions in the unsecured overnight interbank Singdollar cash market.
https://i.imgur.com/vLBIL1Z.png
As for fixed rates, mortgage advisors believe increases will not be as significant as this year's expected interest rate hikes have mostly been priced in. Fixed rates started inching up here at the end of last year, with banks citing upward pressure due to rising cost of funds. "If the US rate hikes keep up, we will probably see fixed interest rates cross the 2 per cent-mark by mid this year," said Redbrick Mortgage Advisory's associate director Clive Chng. The DBS rate is currently 1.65 per cent for a 2-year fixed loan and 1.85 per cent for 3-year loans.
Both Chng and MortgageWise.sg's Goh said interest rate movements in 2018 could be instructive for this year's outlook.
"The last time the federal funds rate hit 2 per cent, the 3-month Sibor in Singapore went to 1.7 per cent and the 3-month compounded Sora reached 1.3 per cent. That should give us a fairly good gauge of where interest rate in Singapore is heading by the end of the year," Goh said.
"The question is: Will the Fed go all the way with a total of 7 hikes this year?"
Goh cautioned against reading the Fed's comments "too literally", noting that the central bank has to consider multiple uncertainties over the next few months, including how protracted the Russian-Ukraine war gets and whether we will see another variant of concern in regard to the pandemic.
Chng, on the other hand, noted that high inflation was not a major part of the equation in 2018; whereas last year, consumer prices in the US rose 7 per cent, representing the highest rate in 4 decades.
"If anything, one might expect that interest rates would move more aggressively this year. That said, there are still many uncertainties, and raising rates that fast might result in a potential recession," Chng said.
He advised mortgagors and prospective homeowners to err on the side of caution and move into fixed-rate packages to hedge against rate increases.
Quek is also largely recommending fixed rates, noting that most banks are still charging less than 2 per cent for 3-year fixed-rate packages. "It will be a tough decision, as many homeowners who are on floating-rate packages are paying less than 1 per cent for the past couple of years," he said.
https://www.businesstimes.com.sg/banking-finance/singapore-mortgages-may-rise-as-much-as-075-this-year-following-fed-hikes