New Reporter
12-06-23, 12:50
Easing mortgage rates and lower household debt may not fuel home-buying: analysts
Jun 07, 2023
SINGAPORE fixed home-loan rates have recently eased, ahead of a likely pause in the US Federal Reserve’s interest rate-hike cycle. But the rate outlook remains uncertain, and the slightly lighter debt burden may not bring buyers back to the housing market immediately, analysts said.
As at Wednesday (Jun 7), DBS’ fixed-rate loans were at 3.75 per cent per annum, with lock-in periods of two to five years. In January, the bank had offered a 4.25 per cent rate.
Since last Friday, OCBC’s two- and three-year fixed-rate loans have been fixed at 3.65 per cent for the lock-in period. The rate in January was 4.25 per cent for the two-year fixed-rate package, and 3.9 per cent for the three-year fixed-rate package.
The Business Times understands that UOB’s rates for its two- and three-year loans are currently about 3.7 per cent.
Since March 2022, the Fed has raised the interest rate 10 times to tackle inflation, bringing its benchmark overnight interest rate to the 5 per cent to 5.25 per cent range.
While the Fed did not say it would pause, it said it would adjust its stance on monetary policy as appropriate, taking into account “a wide range of information” including inflation and labour market conditions.
Some banks in Singapore have been lowering the rates of their fixed home-loan packages, as they may be more certain about a halt in Fed hikes in the next three to six months, said Provost’s Chair Professor Sing Tien Foo of the Department of Real Estate at the National University of Singapore.
He said: “They may take the view that future rates may decline, and lock in the rate now by lowering it slightly.”
Data from the Department of Statistics’ household sector balance sheet indicates that households’ debt burden eased in the first quarter, after total liabilities flattened by 0.02 per cent on a yearly basis to S$359.2 billion.
In Q1, households’ mortgage loans stood at S$263.5 billion, growing at a slower quarterly rate of 0.2 per cent from 0.7 per cent in Q4 2022. However, mortgage loans in Q1 were still up 2.5 per cent year on year.
While the slowdown in borrowing points to households possibly paying down debt after seeing their monthly interest payments go up, it could also reflect the overall lower volume in the residential market.
“Our valuers have been noticing a weakening resale market in Q1 2023, with significantly fewer requests for valuations by banks for resale properties,” said Savills Singapore’s executive director of research and consultancy Alan Cheong, noting that the trend is spilling into Q2.
Sales volume in the housing market has slowed in the wake of successive rounds of government cooling measures, dampening sentiment amid higher prices, and financing costs.
Additional Buyer’s Stamp Duty (ABSD) went up in December 2021, before loan limits were considerably tightened in September 2022. ABSD was further raised in April 2023, doubling for foreigners, who now pay a 60 per cent rate when they purchase a residential property. The higher ABSD for second and subsequent homes has also given pause to buyers eyeing properties for investment.
Changes in current interest rates mainly impact the resale property market. For properties bought in new uncompleted projects from developers, the progressive payment scheme means mortgages are not fully drawn upon until completion.
Hence, “(new project) buyers are not so fixated on borrowing costs because they, perhaps having been educated by economists, expect rates to plateau soon and begin declining in 2024”, said Cheong.
Developers sold 1,256 private residential units (excluding executive condominiums) in Q1, down 31.1 per cent from the 1,825 units sold a year ago. There were 2,622 resale transactions in Q1, down from 3,377 units transacted in the year-ago period.
ERA key executive officer Eugene Lim said he expects that as home loan rates dip, homebuyers with more immediate housing needs may move into the market.
“Based on a S$1 million home loan on a 30-year tenure, the monthly mortgage payments would now be S$4,631.16, assuming a 3.75 per cent interest rate, compared with S$4,919.40 previously at a 4.25 per cent. That (amounts) to savings of S$288.24 a month,” he said.
Huttons senior research director Lee Sze Teck noted that the lower borrowing costs in recent months have added to the impetus for homebuyers to search for a property.
But Derek Tan, DBS’ head of regional property research, noted that lower mortgage rates “lift the burden somewhat, but the dip is not significant enough for people to want to jump back in, contrasting that to, say, factors such as changes in job prospects and economic outlook”.
NUS’ Sing said: “The current high prices will still be a main resistance to weakened buying activity in the private market.”
Prices of private residential properties rose by 3.3 per cent in Q1 2023, data from the Urban Redevelopment Authority showed. This followed an 11.4 per cent rise for the whole of 2022. Prices are widely expected to moderate, with 2023 forecast to finish with an overall rise of 3 per cent to 7 per cent.
Savills’ Cheong said: “Attractive schemes will no doubt give the slowing resale market a boost, but it is more likely to positively impact those on the fringes who are sensitive to interest rates.”
Markets are expecting interest rates to decline from the later part of 2023 to 2024, said Paul Wee, vice-president of PropertyGuru Finance.
OCBC chief economist Selena Ling reckons that the Fed will likely hold rates for Q3 2023 at least.
She said that the strong non-farm payrolls data and the US debt-ceiling agreement passed on Jun 3 have reduced fears of a recession in the US, and thus market speculation of an impending Fed rate cut has been pared back.
Clive Chng, associate director at Redbrick Mortgage Advisory, noted that banks also take into account other considerations, such as local market liquidity, competition, risk assessment, funding costs and business strategy to determine changes in fixed-rate mortgages.
https://www.businesstimes.com.sg/companies-markets/reits-property/easing-mortgage-rates-and-lower-household-debt-may-not-fuel-home
Jun 07, 2023
SINGAPORE fixed home-loan rates have recently eased, ahead of a likely pause in the US Federal Reserve’s interest rate-hike cycle. But the rate outlook remains uncertain, and the slightly lighter debt burden may not bring buyers back to the housing market immediately, analysts said.
As at Wednesday (Jun 7), DBS’ fixed-rate loans were at 3.75 per cent per annum, with lock-in periods of two to five years. In January, the bank had offered a 4.25 per cent rate.
Since last Friday, OCBC’s two- and three-year fixed-rate loans have been fixed at 3.65 per cent for the lock-in period. The rate in January was 4.25 per cent for the two-year fixed-rate package, and 3.9 per cent for the three-year fixed-rate package.
The Business Times understands that UOB’s rates for its two- and three-year loans are currently about 3.7 per cent.
Since March 2022, the Fed has raised the interest rate 10 times to tackle inflation, bringing its benchmark overnight interest rate to the 5 per cent to 5.25 per cent range.
While the Fed did not say it would pause, it said it would adjust its stance on monetary policy as appropriate, taking into account “a wide range of information” including inflation and labour market conditions.
Some banks in Singapore have been lowering the rates of their fixed home-loan packages, as they may be more certain about a halt in Fed hikes in the next three to six months, said Provost’s Chair Professor Sing Tien Foo of the Department of Real Estate at the National University of Singapore.
He said: “They may take the view that future rates may decline, and lock in the rate now by lowering it slightly.”
Data from the Department of Statistics’ household sector balance sheet indicates that households’ debt burden eased in the first quarter, after total liabilities flattened by 0.02 per cent on a yearly basis to S$359.2 billion.
In Q1, households’ mortgage loans stood at S$263.5 billion, growing at a slower quarterly rate of 0.2 per cent from 0.7 per cent in Q4 2022. However, mortgage loans in Q1 were still up 2.5 per cent year on year.
While the slowdown in borrowing points to households possibly paying down debt after seeing their monthly interest payments go up, it could also reflect the overall lower volume in the residential market.
“Our valuers have been noticing a weakening resale market in Q1 2023, with significantly fewer requests for valuations by banks for resale properties,” said Savills Singapore’s executive director of research and consultancy Alan Cheong, noting that the trend is spilling into Q2.
Sales volume in the housing market has slowed in the wake of successive rounds of government cooling measures, dampening sentiment amid higher prices, and financing costs.
Additional Buyer’s Stamp Duty (ABSD) went up in December 2021, before loan limits were considerably tightened in September 2022. ABSD was further raised in April 2023, doubling for foreigners, who now pay a 60 per cent rate when they purchase a residential property. The higher ABSD for second and subsequent homes has also given pause to buyers eyeing properties for investment.
Changes in current interest rates mainly impact the resale property market. For properties bought in new uncompleted projects from developers, the progressive payment scheme means mortgages are not fully drawn upon until completion.
Hence, “(new project) buyers are not so fixated on borrowing costs because they, perhaps having been educated by economists, expect rates to plateau soon and begin declining in 2024”, said Cheong.
Developers sold 1,256 private residential units (excluding executive condominiums) in Q1, down 31.1 per cent from the 1,825 units sold a year ago. There were 2,622 resale transactions in Q1, down from 3,377 units transacted in the year-ago period.
ERA key executive officer Eugene Lim said he expects that as home loan rates dip, homebuyers with more immediate housing needs may move into the market.
“Based on a S$1 million home loan on a 30-year tenure, the monthly mortgage payments would now be S$4,631.16, assuming a 3.75 per cent interest rate, compared with S$4,919.40 previously at a 4.25 per cent. That (amounts) to savings of S$288.24 a month,” he said.
Huttons senior research director Lee Sze Teck noted that the lower borrowing costs in recent months have added to the impetus for homebuyers to search for a property.
But Derek Tan, DBS’ head of regional property research, noted that lower mortgage rates “lift the burden somewhat, but the dip is not significant enough for people to want to jump back in, contrasting that to, say, factors such as changes in job prospects and economic outlook”.
NUS’ Sing said: “The current high prices will still be a main resistance to weakened buying activity in the private market.”
Prices of private residential properties rose by 3.3 per cent in Q1 2023, data from the Urban Redevelopment Authority showed. This followed an 11.4 per cent rise for the whole of 2022. Prices are widely expected to moderate, with 2023 forecast to finish with an overall rise of 3 per cent to 7 per cent.
Savills’ Cheong said: “Attractive schemes will no doubt give the slowing resale market a boost, but it is more likely to positively impact those on the fringes who are sensitive to interest rates.”
Markets are expecting interest rates to decline from the later part of 2023 to 2024, said Paul Wee, vice-president of PropertyGuru Finance.
OCBC chief economist Selena Ling reckons that the Fed will likely hold rates for Q3 2023 at least.
She said that the strong non-farm payrolls data and the US debt-ceiling agreement passed on Jun 3 have reduced fears of a recession in the US, and thus market speculation of an impending Fed rate cut has been pared back.
Clive Chng, associate director at Redbrick Mortgage Advisory, noted that banks also take into account other considerations, such as local market liquidity, competition, risk assessment, funding costs and business strategy to determine changes in fixed-rate mortgages.
https://www.businesstimes.com.sg/companies-markets/reits-property/easing-mortgage-rates-and-lower-household-debt-may-not-fuel-home