Published June 9, 2007

New guidelines to make home loans more transparent


(SINGAPORE) The Association of Banks in Singapore (ABS) yesterday announced new guidelines to make home loans here more transparent.

The guidelines, which take effect from Friday next week, require member banks to explain to customers why rates have changed if they revise their rates, and to provide an updated repayment schedule based on the new rates on request.

They must also include in their offer documents for new loans the relevant board rate and any benchmark to which the board rate is linked and make a detailed repayment schedule readily available.

'The new measures mean that banks must now disclose even more pertinent information to help customers decide on their home loan packages,' ABS said in a statement.

ABS director Ong-Ang Ai Boon said the information must be disclosed when member banks offer home loans to customers. The information will also be given to people who call on member banks to ask about home loans.

Once a customer has taken out a loan, any change to the rate and the reasons for the change must be explained in a letter to the customer, she added. But the guidelines apply only to new loans made from June 15, not existing ones.

Banks here came under fire late last year from home owners who decried the practice of using multiple board rates for different customers as confusing and opaque.

Banks usually charge customers an effective rate equal to the board rate less a discount, but the board rate often varies across different products. The board rates are also subject to adjustment by banks and are not always made public.

The outcry prompted several banks to launch new home loan products benchmarked against publicly available rates such as Sing dollar swap-offer rates or interbank rates, or the Central Provident Fund Ordinary Account rate.

Banks have insisted they need the flexibility to charge different rates on loans made at different times, because their cost of lending changes with market conditions.

Yesterday's statement from ABS, which represents more than 100 banks here, reflects this stance. The new guidelines say customers must be told clearly that the board rate they are quoted applies only to them for the particular loan package they are interested in and that the bank can change the board rate at any time by giving 30 days' notice.

The 30 days' notice period does not apply to home loans linked to market indices such as the three-month interbank rate, as these vary with the benchmark.

ABS has also developed a consumer guide with MoneySense, the national financial education initiative, to educate the public on home loans.

The guide, which will be distributed to potential home loan customers and published on the ABS website from next Friday, explains the different types of home loans and lists basic information that customers should ask for when they apply for one.