SOR-pegged home loans taken off the market

JUL 17, 2017

Such home loans fall out of favour due to volatility in rates, compared to other types

Rachael Boon

The only bank that was offering home loans pegged to the swap offer rate has now axed the product for new customers.

ANZ stopped accepting new applications for its floating rate home loans pegged to the three-month swap offer rate in recent weeks.

The Australian bank was the last to hold out: DBS and OCBC ceased offering these mortgages to the mass market back in 2011, while UOB said it has been several years.

ANZ has halted several product lines as its retail and wealth management units in Singapore and four other regional markets are being integrated with DBS Bank, which agreed to acquire the units last October.

Home buyers have been increasingly deterred by this type of loan as the swap offer rate can swing relatively wildly, which makes repayment levels uncertain.

Redbrick Mortgage Advisory director Eugene Huang added: "The swap offer rate tends to be more volatile historically as compared to Sibor as it not only reflects lending rates, but also the currency exchange rate between the Singapore dollar and US dollar."

Sibor, or the Singapore interbank offered rate, which reflects how much it costs banks to borrow from each other, is the mostly commonly used benchmark to set mortgage levels.

There has not been a great deal of difference between the two rates in recent years but Sibor tends to be more consistent, so home buyers can have peace of mind about their repayment levels.

The offer rate has been trending lower than Sibor in recent months.

Mortgage Supermart Singapore broker Keff Hui said the three-month swap offer rate was below 0.9 per cent for almost all of the first half of the year while the three-month Sibor has been moving between 0.94 and 0.9987 per cent.

The swap offer rate is usually used to price big interbank commercial loans, while mortgages for commercial property tend to reference either the bank's own board rate or Sibor, or in recent years, fixed deposit rates, added Mr Hui.

Despite the swap offer rate being lower than Sibor these days, the three local banks are unlikely to bring mortgages linked to this benchmark back to the mass market.

OCBC Bank said the rate fluctuations were behind its decision to axe the product and opt for Sibor in 2011, although it still offers it for select "customers who are re-pricing their existing home loans with us".

FindaHomeLoan founder Sean Lim also noted that Bank of China has a three-month swap offer rate plus 1 per cent plan, but only for private housing and executive condominiums.

Analysts said other types of mortgages - such as fixed deposit-linked or fixed-rate packages - are just as attractive as those linked to Sibor or the swap offer rate.

Ms Rhonda Wong, chief executive of property platform Ohmyhome, noted: "Home buyers or owners should look at home mortgage packages in their entirety, instead of just basing them off the cheapest interest rate.

"Other factors such as certainty and security could be more important than the initial difference you save each month for a cheapest rate.

"Given that the climate of interest rates is uncertain, if a home buyer is worried about volatility, he could consider mortgage packages that come with a cap."