http://www.straitstimes.com/archive/...pikes-20150325

Higher mortgage repayments likely as interest rate spikes

Published on Mar 25, 2015 2:22 AM

By Grace Leong


MANY home owners face higher mortgage repayments after a key interest rate that determines housing loans surged to a level not seen since December 2008.

The three-month Singapore Interbank Offered Rate, or Sibor, hit 1.00129 per cent yesterday - up about 23 per cent since March 6.

It is also more than 118 per cent higher since the start of the year, when it was 0.45738 per cent.

That is still low by historic standards: It hit a high of 3.56214 per cent on July 31, 2006.

The rise signals that mortgage repayments are on the way up as many home loans are pegged to the three-month Sibor, so they rise and fall in tandem with it.

The Sibor has been on a slow burn for weeks after a stronger-than-expected American job report on March 6 stoked expectations that the United States Federal Reserve could raise interest rates sooner than thought.

The latest rise has come despite signals from the US central bank last week that it will keep interest rates close to zero for longer than expected.

Barclays economist Leong Wai Ho said the Sibor spike appears to have been "too much, too soon".

"The general expectation was for Sibor to hit 1 per cent by the year end," he said.

"It may be a little more uncomfortable for those who own two or three properties, as they may have to divert their discretionary income into mortgage debt servicing," he added.

But Phillip Futures investment analyst Howie Lee said the run-up in Sibor since the start of the year is no great surprise.

"Sibor has been at suppressed rates for more than seven years. Although the run-up is sudden, the US dollar has been very strong this year, and overall volatility in global equities, commodities and currency markets has been very high, so it's not unusual to see high volatility in interest rates."

Mr Sailesh K. Jha, chief Asia economist, Credit Suisse Private Banking and Wealth Management, tips the Sibor to hit between 1 per cent and 1.5 per cent over the next six to nine months. "The market over the last year has been underestimating the depreciation of the Singdollar against the US dollar. It's now playing catch-up on Sibor rates," he said.

Most home owners should find the higher Sibor rates manageable if they are not overleveraged.

Ms Joanna Tan, 32, who just bought her first condominium unit in Serangoon, said the rise in Sibor rates is not a concern yet.

"I'm fully financing my loan by CPF (Central Provident Fund) savings. If my instalment payment increases and exceeds what I normally pay, then I will have to pay with cash," she said.

[email protected]