Results 1 to 20 of 20

Thread: Impact of a rise in mortgate rates

  1. #1
    Join Date
    Jul 2009
    Posts
    4

    Default Impact of a rise in mortgate rates

    Hi gurus,

    I am a newbie looking to purchase my first property but the only factor holding me back is the potential impact of rising interest rates.

    Some questions I would like to ask:

    1) how long more can interest rates stay this low and what will be the effects on the economy other than property and stocks as we have already seen?

    2) what proportion of homeowners/investors/would-be buyers will be significantly affected by a moderate, say 1% rise in interest rates and would this be significant enough to drive down the whole market?

    are my concerns warranted?

    these thoughts go thorough my mind:

    i can afford a 1mil loan now at a floating rate of say 2% but if the floating rate goes up to say 3%, i might only be qualified for 850K so my dream house may become out of reach if i wait to see the impact of a rise in rates but then again if it does impact prices, the drop in price might be more than 150K.

  2. #2
    Join Date
    Feb 2009
    Location
    峨眉山
    Posts
    5,512

    Default

    SIBOR going up from April 2010. (DBS)

  3. #3
    Reporter's Avatar
    Reporter is offline F01 N54 Sheer Driving Pleasure
    Join Date
    Apr 2008
    Posts
    2,549

    Default

    Quote Originally Posted by mcmlxxvi, 3 February 2010 6.24 pm
    SIBOR going up from April 2010. (DBS)
    Cos' DBS is losing money due to the lower interest rates?

    Quote Originally Posted by The Business Times

    Softer interest rates hurt DBS more
    Siow LiSen
    The Business Times
    Wednesday, 27 January 2010

    Contrary to expectations, interest rates in Singapore have weakened, albeit marginally, from mid-December levels. But while the fall is small, it is not good news for banking giant DBS Group Holdings.

    The key 3-month Sibor or Singapore interbank offered rate has eased from 0.68542% to 0.68328% on Dec 14 and has slid a tiny bit more to 0.67808% since Jan 14.

    It's a bit of a head scratcher because all the expectations had been for a tightening, all the more so because of China's move to rein in its monetary policy earlier than speculated.

    Since the 3rd quarter last year, many have forecast that interest rates would rise gradually this year as governments try to implement exit packages because of worries over deficits and inflationary pressures.

    Consumer prices rose an average 0.2% last year after gaining 6.5% in 2008.

    The Monetary Authority of Singapore (MAS) has forecast that inflation will average 2.5 to 3.5% this year.

    Sibor may have slipped because of larger inflows from expectations that the MAS will let the local dollar rise in its next policy monetary review in April.

    Of course, the interest rate direction could turn any day now and the movements in Sibor have been too slight to be significant for most people. But for DBS, which has huge amounts of deposits and is faced with projected sluggish loans growth, a flat or even small fall in interest rates could be a headache.

    Growth for the loans sector was a weak 1.8% in November 2009, as shown by latest available data.

    Writing yesterday, Leng Seng Choon of DMG & Partners said that he expects DBS to post a stronger FY09 net profit, but due largely to the robust trading income of the first nine months in 2009, a volatile segment. DBS reports FY09 results on Feb 5.

    Mr Leng is projecting FY09 net profit of $2.14 billion, up 11% from FY08. While FY09's other non-interest income is expected to be robust (with 9M09 recording $667 million, up 84% year-on-year, due mainly to a strong showing in the volatile trading income), this could be largely negated by provisions surging 58%, a consequence of the global economic downturn.

    'We forecast weak FY10 core earnings growth, on the back of continued Sibor weakness and soft loan expansion,' he said. He noted that the 3-month Sibor averaged 0.68% in 4Q09, similar to that in 3Q09. This was half the 1.33% for 2008.

    DBS, with a low S$ loan-deposit ratio of 56.9% (versus 71.2% for the overall group), will enjoy lower interbank yields, which could keep its Singapore net interest margin narrow, he said.

    Even with a higher spread from the Hong Kong interbank rate, which is a positive for its DBS Hong Kong unit, this will be somewhat offset by increased loan competition there.

    Mr Leng forecasts narrower net interest margin for DBS compared with its peers.

    Fundamentally, this should be a good year for DBS as long as the economy continues on its recovery. But DBS's strength and Achilles heel have always been the same - the fact that it is government-linked, and so depositors feel safe and leave their money there. The bank has tried to counter this by paying almost nothing for deposits.

    Still, at the end of September 2009, DBS's deposits still grew 1% from the previous quarter to $180.2 billion. That was 65% more than the $116.5 billion held at United Overseas Bank and way above OCBC's $96.9 billion.

    If interest rates remain soft, DBS will face a much tougher climb with its mountain of deposits. A silver lining here could be that it won't be so bad for borrowers.

  4. #4
    Join Date
    Feb 2009
    Location
    峨眉山
    Posts
    5,512

    Default

    Should be. Otherwise doesnt reflect the news which essentially is saying further softening risk for dbs.

  5. #5
    Join Date
    Jan 2009
    Posts
    372

    Default rates

    Hm... tat's interesting ? thought MAS does not wanna use interest rate as a weapon ?

  6. #6
    Join Date
    Nov 2008
    Posts
    1,141

    Default

    Quote Originally Posted by yeppie99
    Hi gurus,

    I am a newbie looking to purchase my first property but the only factor holding me back is the potential impact of rising interest rates.

    Some questions I would like to ask:

    1) how long more can interest rates stay this low and what will be the effects on the economy other than property and stocks as we have already seen?

    2) what proportion of homeowners/investors/would-be buyers will be significantly affected by a moderate, say 1% rise in interest rates and would this be significant enough to drive down the whole market?

    are my concerns warranted?

    these thoughts go thorough my mind:

    i can afford a 1mil loan now at a floating rate of say 2% but if the floating rate goes up to say 3%, i might only be qualified for 850K so my dream house may become out of reach if i wait to see the impact of a rise in rates but then again if it does impact prices, the drop in price might be more than 150K.
    Dude, from Nov till now your are still looking for a property. Prices had moved up about 5 to 10% during these 2 months. Why is the interest rate concern now?

  7. #7
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    Quote Originally Posted by Property_Owner
    Quote Originally Posted by yeppie99
    Hi gurus,

    I am a newbie looking to purchase my first property but the only factor holding me back is the potential impact of rising interest rates.

    Some questions I would like to ask:

    1) how long more can interest rates stay this low and what will be the effects on the economy other than property and stocks as we have already seen?

    2) what proportion of homeowners/investors/would-be buyers will be significantly affected by a moderate, say 1% rise in interest rates and would this be significant enough to drive down the whole market?

    are my concerns warranted?

    these thoughts go thorough my mind:

    i can afford a 1mil loan now at a floating rate of say 2% but if the floating rate goes up to say 3%, i might only be qualified for 850K so my dream house may become out of reach if i wait to see the impact of a rise in rates but then again if it does impact prices, the drop in price might be more than 150K.
    Dude, from Nov till now your are still looking for a property. Prices had moved up about 5 to 10% during these 2 months. Why is the interest rate concern now?
    I am forever very puzzled why there are some people here who somehow think that an increase in interest rates will drive down the property market!

    I'm sure these same people won't be considering the following $235,000 Beverly Mai apartment advertised in the 1974 Straits Times Classifieds below because during those days interest rates was as high as 14.5%.






    According to the "high interest rates will drive down the property market" theory, an interest rate of 14.5% would have caused a catastrophic collapse in the Singapore property market!

    Yet if you trace the price of Beverly Mai from 1974 till its eventual en bloc at $4.4 million per unit in Apr 2006, it was Up, Up and Away!

    Business Times – 27 Apr 2006

    HPL bags Beverly Mai for $238m

    HOTEL Properties Ltd (HPL) has clinched Beverly Mai on Tomlinson Road through a $238 million collective sale.

    The owners of Beverly Mai’s 50 apartments will receive slightly over $4.4 million per apartment while the two penthouse owners will walk away with double that amount – about $8.81 million per unit. These sums represent collective sale premiums of 76 per cent to 146 per cent – depending on which benchmark is used – in terms of what the apartments would have fetched on an individual basis.

  8. #8
    Join Date
    Nov 2008
    Posts
    1,385

    Default

    Quote Originally Posted by jlrx
    I am forever very puzzled why there are some people here who somehow think that an increase in interest rates will drive down the property market!

    I'm sure these same people won't be considering the following $235,000 Beverly Mai apartment advertised in the 1974 Straits Times Classifieds below because during those days interest rates was as high as 14.5%.
    Maybe the buyers are thinking hard,the factors that could bring down the price of properties..??

    Though im aso waiting to buy again. I do not expect a double dip chance,but rather perhap a cycle again.

  9. #9
    Join Date
    Nov 2008
    Posts
    1,393

    Default

    an increase of 0.5% in interest rates to for a $1m loan is an increase in monthly payments of $400-500 for a 30 year loan.

    maybe to some that's a big difference?

    it's not uncommon for families grossing $10k a month buying million dollar properties nowadays.

  10. #10
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    Quote Originally Posted by gfoo
    an increase of 0.5% in interest rates to for a $1m loan is an increase in monthly payments of $400-500 for a 30 year loan.

    maybe to some that's a big difference?

    it's not uncommon for families grossing $10k a month buying million dollar properties nowadays.
    Interest rate is a symptom, rather than cause, of economic conditions.

    In fact, a rising interest rate is an indication of a healthy economy (depends on who you talk to ).

    I'm looking forward to another round of 14.5% interest rates because that's exactly the catalyst which pushed Beverly Mai from $235,000 to $4.4 million.

    This will also bring The Sail to $40+ Million per unit.

    When interest rates hit 14.5%, income will follow suit, even if not to the same extent (provided you are not a fresh graduate or at a low-income earner).

    Can you imagine that 21 years ago, in 1989, no doctor in Singapore earned more than $100,000 per month?

    While a top-grossing partner in the largest law firms surveyed averaged only $102,297 per month!




  11. #11
    Join Date
    Nov 2008
    Posts
    1,141

    Default

    So now yeppie99 must ''chase price''?

  12. #12
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    Talking about interest rates, just look at the following advertisements.





    Propertism Exam Question

    What should you do when faced with such high interest rates?

    A. Quickly put all your money in the bank to earn this high interest rate.

    B. Quickly flip the Straits Times Classifieds to look for properties like these ...


  13. #13
    Join Date
    Apr 2009
    Posts
    5,841

    Default

    back in 1977, $500000 is considered a humongous sum of money. You will have to multiply that by 20 times at least to compare that with today's money. A bowl of noodles that cost 20 cents in 1977 will be $4 today, so that has a multiplier effect of 20 times. You multiply $500k by 20 and the price is about right $10 million. This is called inflation...

  14. #14
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    Quote Originally Posted by Regulators
    back in 1977, $500000 is considered a humongous sum of money. You will have to multiply that by 20 times at least to compare that with today's money. A bowl of noodles that cost 20 cents in 1977 will be $4 today, so that has a multiplier effect of 20 times. You multiply $500k by 20 and the price is about right $10 million. This is called inflation...
    Actually "Propertism" is just another name for "Inflation".

    Prophet Kwek, who recently took over as the new Godfather of Propertism, said in 1977 "In times like these, there's no better investment than a home of your own. The scarcity of land alone is a good reason to put your money in it. Not to mention the fast shrinking buying power of the dollar. Hong Leong Gardens offer you the perfect hedge against inflation ..."

    ... and his words became a self-fulfilling prophecy when he bought back the 180 apartments that he sold for $79,000 each, at a price of $730,000 each.



    Business Times - 8 Mar 2007

    CDL buys Hong Leong Garden for $131.5m

    Announcing its second land acquisition this week, City Developments, the listed property arm of Singapore’s Hong Leong Group, said yesterday it has bought Hong Leong Garden Condominium in the West Coast area through a $131.5 million collective sale.

    The 25-year-old Hong Leong Garden Condominium site was originally developed in the 1980s by the Hong Leong Group. It currently houses 180 residential units in six blocks.

  15. #15
    Join Date
    Jul 2009
    Posts
    4

    Default

    Quote Originally Posted by Property_Owner
    Dude, from Nov till now your are still looking for a property. Prices had moved up about 5 to 10% during these 2 months. Why is the interest rate concern now?
    hi property_owner, in nov i was looking but concerned with job issues so decided to play safe. the interest rate question now is my final hurdle so seeking some views on this.

    a bit of background, i'm in no real need for a property of my own now, still staying with parents, not getting married anytime soon but looking for an opportunity to get started on the "property bandwagon" because i too believe in properties as an asset but i also believe in buying at the right price.

    what is your opinion? if rates rise 1% tomorrow, what do you think will be the effect?

  16. #16
    Join Date
    Feb 2009
    Posts
    5,837

    Default

    Quote Originally Posted by yeppie99
    hi property_owner, in nov i was looking but concerned with job issues so decided to play safe. the interest rate question now is my final hurdle so seeking some views on this.

    a bit of background, i'm in no real need for a property of my own now, still staying with parents, not getting married anytime soon but looking for an opportunity to get started on the "property bandwagon" because i too believe in properties as an asset but i also believe in buying at the right price.

    what is your opinion? if rates rise 1% tomorrow, what do you think will be the effect?
    like i said property game is for those with spare cash ...
    for many ( in most cases) people buy with 'just nice' cash savings .. and taking 80 pct loan...and with enuff CPF + small cash to meet the monthly payment

    so a 1 pct hike ..may upset many such buyers

    you just have to work out using the current repayment (loan rate) and add 1.5 pct buffer .. is thats still manageable .. then go ahead

  17. #17
    Join Date
    Sep 2008
    Posts
    774

    Default

    I would say always buffer for 5% to 6% avg interest rate on home loans, and if your monthly repayment (after accounting for 5 to 6% interest) is less than 40% of your gross household income. You should be fine.

    Also, always have spare cash / savings that can pay up to at least a year of monthly repayments in case of rainy days like unemployment or illness.

  18. #18
    Join Date
    Oct 2009
    Posts
    87

    Default Sibor / Interest Rate Raising !

    Business News Fed hikes rate on bank loans amid easing financial crisis
    Posted: 19 February 2010 0548 hrs
    Photos 1 of 1 " src="http://www.channelnewsasia.com/images/butt_next.gif" width=18 height=15 type=image>
    US Federal Reserve

    WASHINGTON: The US Federal Reserve said on Thursday it was increasing the interest rate it charged on emergency loans to banks in a move to normalise lending after radical measures to jolt the economy from recession.

    The Fed said the hike in the discount rate, or the primary credit rate, to 0.75 percent from 0.5 percent would be effective on Friday and reflected the easing of the financial crisis that resulted from a home-mortgage meltdown.

    In a statement, the Federal Reserve Board said that "in light of continued improvement in financial market conditions, it had unanimously approved several modifications to the terms of its discount window lending programmes."

    With immediate effect, the maximum maturity period for primary credit loans would also be shortened to overnight.

    Primary credit is provided by the Fed and the regional central banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds, the statement said.

    The Fed also said that it had raised the minimum bid rate for the so-called term auction facility by 0.25 percentage point to 0.5 percent.

    The central bank created the facility in December 2007, when the United States plunged into recession, to further improve the access of depository institutions to term funding.

    The Fed made clear that the changes did not reflect any tightening of monetary policy.

    "The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC)," it said.

    At the January 26-27 meeting, the FOMC, the policy-making body of of the central bank, left its target range for the federal funds rate - the rate at which the banks charge each other for overnight loans - at zero to 0.25 percent.

    It had said that it anticipated economic conditions were likely to warrant exceptionally low levels of the federal funds rate for an extended period.

    The increase in the discount rate announced on Thursday widens the spread between the primary credit rate and the top of the federal funds target range to 0.5 percentage point, the Fed statement said.

    "The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds," it said. - AFP/de

  19. #19
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    "Those who cannot learn from history are doomed to repeat it."
    George Santayana (December 16, 1863 – September 26, 1952)



    Propertism Exam Question 1

    In the 1970's, when you see the Chartered Bank (top left) advertised deposit rates of 8% p.a., what should you do?

    A. Quickly place all the money you have in the Chartered Bank to earn 8% p.a.

    B. Quickly buy this 30,000 sq ft. Queen Astrid Park Bungalow asking $500,000.



    Propertism Exam Question 2

    In the 1980's, when you see Kiaw Aik Hang (top right) advertised "ATTRACTIVE RATES" for fixed deposits at 9.75% p.a., what should you do?

    A. Quickly place all the money you have in Kiaw Aik Hang to earn 9.75% p.a.

    B. Quickly buy this 38,000 sq ft. Queen Astrid Park Bungalow asking $3.8 million.



    Propertism Exam Question 3

    In the 6 years and 5 months (from 14 Nov 1977 when a 30,000 sq ft Queen Astrid Park was asking $500,000 or $16.67 psf, to 12 Apr 1984 when a 38,000 sq ft Queen Astrid Park was asking $3.8 million or $100 psf), what was the componded psf annual rate of return of Queen Astrid Park?

    a. 3.2%
    b. 8%
    c. 9.75%
    d. 32%

    Propertism Rule No. 1 - Properties should only be bought. Not sold.

    “The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.”
    - Adam Smith (16 June 1723 – 17 July 1790)



    “The modern banking process manufactures currency out of nothing.”.
    - Lord Josiah Stamp, Former Director of the Bank of England (1937)

    “At the end fiat money returns to its inner value—zero.”
    - Voltaire (21 November 1694 – 30 May 1778)

  20. #20
    Join Date
    Apr 2008
    Posts
    1,286

    Default

    3.8 - a Very Interesting Number !!!






    In the 6 years and 5 months (from 14 Nov 1977 when a 30,000 sq ft Queen Astrid Park was asking $500,000 or $16.67 psf, to 12 Apr 1984 when a 38,000 sq ft Queen Astrid Park was asking $3.8 million or $100 psf), the compounded psf annual rate of return of Queen Astrid Park (QAP) was 32% when the average fixed deposit interest rate was around 8% to 9% (assume an average of 8.5% p.a). The return from investment in QAP (just the capital gains alone excluding rental) was 3.8 times that from fixed deposits!

    Now let's do another analysis. Today, QAP is asking $1,0XX psf compared to $100 psf in 1984 (assume an average of $1,050 psf).



    In the 26 years from 1984 to 2010, the compounded psf capital gains return of QAP was 9.5% per annum (much lower than the 32% achieved between 1977 and 1984).

    However, correspondingly, the interest rates environment during the last 26 years was also much lower than that between 1977 and 1984 (we don't get 8.5% p.a. fixed deposits anymore). Instead, the average interest rate between 1988 and 2008 averaged around 2.5% (around the same as CPF ordinary account interest rate).



    If we take the average capital return of QAP (excluding rentals) over the most recent two decades (i.e. 9.5%) and divide by the average interest rate over the same period (2.5%), we get 3.8 times again!!!

    Therefore, it seems that the capital gains (excluding rental returns) of QAP Good Class Bungalows is consistently 3.8 times of fixed deposit returns!!!

    So it seems that when interest rates go down, property prices go up because of "Excess Liquidity"; but when interest rates go up, property prices go up even more because of "Inflationary Pressure".

    Should we all let's look forward to the day when mortgage rates return to double digits again?


Similar Threads

  1. Replies: 0
    -: 30-12-21, 08:58
  2. Replies: 0
    -: 20-12-21, 10:13
  3. Replies: 0
    -: 15-11-21, 09:35
  4. Impact of hike in development charge rates
    By reporter2 in forum En Bloc Discussion and News
    Replies: 0
    -: 05-03-18, 14:48
  5. Home prices may rise 5-8% on wider impact
    By mr funny in forum HDB, EC, commercial and industrial property discussion
    Replies: 0
    -: 15-11-06, 17:55

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •