Jan 26, 2007

Home loan rates set to become more transparent

Association of Banks likely to announce measures to address rising customer concerns

By Grace Ng

BUYING a new home is stressful enough without the added problem of trying to understand a confusing array of home loan interest rates.

With this in mind, Singapore's banking regulator has urged banks here to get together and take prompt action to explain mortgage rates more clearly.

A set of measures to increase transparency in home loan rates across the entire banking industry is expected to be announced in two to three weeks, according to industry sources.

This follows a spate of recent complaints from home owners - including some who were upset that home loan rates get changed unexpectedly.

Others did not understand why rates were heading up when experts say the benchmark rate may be levelling off or even moving down.

The Straits Times understands that the Monetary Authority of Singapore (MAS) has held meetings with the Association of Banks (ABS) and its members on this issue in recent months.

The purpose: To discuss ways to disclose the banks' multiple board rates more clearly to their customers.

Responding to queries, MAS told The Straits Times yesterday that it 'expects banks to provide consumers with relevant and useful information''.

'In the case of housing loans, it is important for banks to provide clear information and explanation on the interest rates applicable,' a spokesman said. The MAS 'encourages the efforts' of ABS to work with the industry to 'come up with a set of measures to increase the transparency of banks' communications with customers'.

A banker said that over the past week, lenders have each submitted written proposals on promoting home loan transparency to MAS and ABS.

Consumers have been 'expecting such measures from banks for a long time', said Consumers Association of Singapore (Case) executive director Seah Seng Choon.

This is set to be the first time the banks will collectively set out industry guidelines to tackle transparency in home loans, after years of individually addressing borrowers' concerns.

The moves come after a string of letters to the press and at least 14 complaints to Case last year on the lack of transparency about when and how banks changed their home loan rates.

Home owners are also confused at banks' use of multiple board rates, to which different home loan rate packages are tied.

Banks set these board rates at their own discretion. They link these rates to a blend of different interest rates, such as the one-month, three-month and even 12-month Singapore Interbank Offered Rate (Sibor) - the rate at which banks borrow from each other.

Home owners such as Mr Chai Ming Yao wrote to The Straits Times forum page earlier this month to urge MAS to look into the 'non-transparent, arbitrary' way banks adjust multiple board rates.

At a two-hour meeting with ABS and MAS last Friday, bank executives also discussed ways to explain more clearly to customers the financial indicators used to set mortgage rates.

They also proposed ways to improve procedures to explain to customers when and why rates are changed.

A committee will hammer out these new measures - set to include efforts to educate home buyers.

A banker said the measures are 'timely', as customers 'demand a lot more information about interest rates, since they often shop around''.

In response, some banks have introduced home loan packages that are pegged to publicly available rates.

DBS Bank recently launched two home loan packages, one tied to the Sibor and the other to the Central Provident Fund Ordinary Account rate. At least two other banks said they may soon launch similar index-linked packages.

However, while the presentation of information about interest rates is likely to improve, customers should not expect any drastic changes in the level of home loan rates or the way the industry operates, said a banker. 'The soup may be roughly the same, but it will be in a clear bowl rather than an opaque one.'

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