It's in home buyers' interest to know ... so, banks to spell out nitty-gritty on rate

Weekend, June 9, 2007

It's in home buyers' interest to know ... so, banks to spell out nitty-gritty on rates

Jasmine Yin

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YOU think you know the bank interest rate you are paying when you take out a home loan — but a year or so later, you discover to your shock that it has ballooned, and you should have read the fine print more closely.

Such scenarios, which were at the heart of numerous gripes from Today readers last year, should be a thing of the past, when new guidelines by the Association of Banks in Singapore (ABS) kick in next Friday.

Its members will have to follow these guidelines when promoting their home loan packages. The aim is to boost transparency over the different interest rates for such loans, which have caused confusion and some unhappiness among borrowers.

Banks will have to state upfront that the board rate offered to one customer may vary from what is offered to others on different loan packages.

They will also have to explain the financial indicators these rates are benchmarked against, such as the three-month Singapore Interbank Offered Rate or the Central Provident Fund rate.

Potential homeowners will also be told that the bank can change the board rate at any time by giving 30 days' notice, depending on market conditions and changes in the financial indicators. The notice requirement, however, does not apply to home loans benchmarked against market indices.

Such disclosures must be included in the bank's Letter of Offer to its customers, ABS director Ong-Ang Ai Boon told Today.

"Basically, the guidelines standardise the information that banks must provide to the consumers before any home loan is taken up, so there is less confusion in the market. We can have more transparency," she said.

The 34-year-old association has a membership of 107 local and foreign banks. This initiative is expected to affect the eight or so major retail banks in Singapore.

Asked how the guidelines would be enforced, Mrs Ong-Ang said: "We are an association and we came together with the banks on this. We have all agreed and we will do it."

There are two broad categories of housing loans in the market. One is the fixed rate package, with fixed and guaranteed interest rates for a certain period of time.

The second is the variable rate package, or the floating bank rate, where interest rates are subject to changes depending on market conditions. Most banks with the ABS have more than one board rate applicable to different loan packages at any one point in time.

This, however, is not always made clear to customers, as reader Seow Chee Bin wrote last October. He had been under the impression that the bank had only one prevailing floating bank rate, and was shocked to discover otherwise come repayment time.

"There is no way I can know my rate unless I call and ask about it. It is not stated in the monthly loan repayment advice," he wrote.

Letter-writer Deepak Gurnani also pointed out: "Neither the Letter of Offer nor the Loan Agreement indicates the bank's practice of multiple floating bank rates, nor are the effects of this explained even remotely to the home loan customer."

The Consumers Association of Singapore's executive director Seah Seng Choon had declared "an urgent need" for banks to review the disclosure standards on bank rates.

Mr Gurnani welcomed the new guidelines on Friday, calling them "a good step in the right direction" that would help potential homeowners make better-informed decisions.

He felt, however, that there could be further transparency were banks to have just one single board rate, instead of multiple floating rates.

The ABS has teamed up with MoneySENSE – the national financial education programme – to publish a new guide on home loans. This 14-page booklet will be available at the banks to customers before a loan is committed. It is also on the websites of the ABS and the Monetary Authority of Singapore.

June 9, 2007

Banks to make home loan rates more transparent

By Grace Ng


SINGAPORE banks are promising homeowners a lot more clarity on how the interest rates charged on their home loans change over time.

The banks have responded to growing anger among homeowners with mortgages who say they are confused over rate changes.

Under a new agreement, banks must clearly disclose their 'board rates' and key indicators that these rates are pegged to, such as the Central Provident Fund (CPF) or Sibor rate - the interest rate at which banks lend money to each other.

A board rate is a benchmark rate which reflects how much it costs each year to take out a loan. Banks use the benchmark rate to set rates for different years.

For example, Year One of a home loan could be 1 per cent below the board rate, while Year Two's rate is 0.75 per cent below.

In recent months, complaints have been raised over the fact these board rates can vary between banks, and even between different home loan packages offered by the same bank.

For instance, UOB's current HomePlus Rate is 4.5 per cent, while DBS has a Home Loan Rate of 4 per cent.

Banks have also been criticised for not being transparent about how these board rates are determined and changed over time.

Now, banks have to provide standard information about their rates so customers can compare them more easily, said Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore (ABS).

More banks now link home loan rates to a publicly available rate, such as the bank's prime rate, CPF rate or Sibor. This more transparent arrangement means that when these rates go down, home loan rates should also fall.

To further improve transparency, customers have a right to ask banks for a detailed loan repayment schedule for their loan packages. And when rates change, banks must now explain to customers why they were changed and give a revised repayment schedule on request.

The new measures, which kick in next Friday, apply to both new HDB and private property loans that take effect from that date.

The ABS will distribute a consumer guide - Key Questions To Ask Your Bank Before Taking A Home Loan - to potential borrowers from June 15.

This is the first time the banks have collectively set out guidelines to provide more information to help customers choose their home loans. The move comes more than six months after a spate of complaints from homeowners prompted the Monetary Authority of Singapore to urge banks to improve transparency.

The changes are 'long overdue', said Mr Seah Seng Choon, Consumers Association of Singapore executive director. Referring to claims that some home loans rates have not followed Sibor down, Mr Seah said: 'We want to see fair play. The bank should adjust its rates at the same pace, either up or down.'

Banks told The Straits Times yesterday that they welcome the new measures, which added to their individual efforts to lift transparency on rates in recent months.

Maybank now offers a single board rate, while the local banks and Stanchart offer some home loans products that are linked to publicly available rates.

Still, customers are wondering whether the end result of the transparency will be even higher board rates and more expensive loans.

Homeowner Jack Tan, 40, for example, said that when banks launched home loan packages linked to publicly available rates like Sibor, the rates were higher than that of conventional home loans.

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