http://www.businesstimes.com.sg/gove...me-loan-market

3-month Sibor falls to year's low, renewing battle in home-loan market

Sibor, which has barely moved in the last few months, hits 0.87067% on Thursday

By Siow Li Sen

[email protected]

@SiowLiSenBT

Oct 7, 2016


THE three-month key Singapore interbank offered rate or Sibor has finally cracked, weighed down by domestic liquidity - and DBS Bank has wasted no time in offering cheaper home loans.

Sibor fell to the year's low on Thursday to 0.87067 per cent, from 0.87242 per cent the day before.

Although the decline is small, it is significant because the sticky three-month Sibor, which is used to price home loans, had barely moved in the past few months.

On the other hand, the more volatile three-month swap offer rate (SOR), which is used to price corporate loans, has been on a general downward trend for a few months.

DBS, the nation's largest home loan provider this week began offering a promotional three-year, fixed-rate home-loan package online, at 1.68 per cent per annum.

The non-promotional three-year fixed-rate package stands at 1.80 per cent per annum.

DBS executive director of secured lending (Consumer Banking) Tok Geok Peng said home-owners should choose home-loan packages based on their needs instead of going with short-term interest rate movements.

"For home owners who prefer stability in their home-loan repayment, a fixed-rate package lets them enjoy a flat interest rate for a period of time, and at the same time protects them from any upward interest-rate movement.

The promotion ends Oct 31.

Home-owners who want to enjoy lower interest rates now might consider home-loan rates pegged to fixed deposit rates, suggested Ms Tok.

DBS has a three-year package pegged to its 18-month fixed-deposit home rate (FHR), currently at 0.60 per cent. This package charges a 0.40 per cent premium for the first year, rising to 0.85 per cent for the subsequent years.

This means the first year all-in rate is 1 per cent, rising to 1.45 per cent in subsequent years, based on the existing 18-month FHR.

Maybank said market competition in property loans has intensified over since mid-year.

"We are constantly monitoring the market situation, and reviewing our suite of home-loan packages (including the Sibor packages), to ensure we remain competitive and of value to home owners," said the spokeswoman for the bank.

Its promotional fixed and variable home-loan interest rate packages start at 1.60 per cent per annum and 1.25 per cent per annum respectively for the first year, she said.

Explaining the Sibor fall, Eugene Leow DBS economist said the logical explanation was that it had to catch up with the SOR, given ample domestic liquidity.

"It's finally decided to catch up with the SOR ... (It was) was only a matter of time before it cracked," he said.

The Sibor and SOR used to track each other very closely before 2008; the spread used to be less than 5 points, he said.

The Singdollar continued to weaken against the US dollar, falling for the fourth straight day to stand at S$1.3717 on Thursday; it had been at S$1.3637 on Monday.

Local interest rates are weak because of fund inflows into the region, attracted by its robust growth. Capital inflows to the region typically flow through Singapore, which is the Asian home to most of the world's largest asset-management companies and pension funds.

But as the Singdollar falls, interest rates would typically rise, so as to provide an incentive to hold the currency.

The current low interest rates amid a weak Singdollar scenario has caused some head scratching among market watchers.

Mr Leow said the divergence is due to traders buying USD by selling SGD on the spot market, causing the SGD to fall; but the market is also buying SGD in the forward or futures market, signalling their belief in a fundamentally strong SGD.