Borrowers feel rate hike pinch as banks step up mortgage repricing

AS interest rates hit a 10-year high, banks are increasingly firing off missives to home loan borrowers informing them that their loans have been repriced.

For some, it will be the second repricing letter this year as interest rates continue their relentless climb.

The key 3-month Sibor or Singapore interbank offered rate - a common benchmark used to price home loans - rose to 1.64 per cent over a week ago, back to levels last seen in September 2008. At 1.64 per cent, it has gained some 50 basis points from late last year.

For many borrowers the applicable interest rate hike is between 20 and 40 basis points since the beginning of 2018, which can translate into several hundred dollars more in monthly instalments.

One banker noted that the regulator has been flagging the higher interest rate burden on mortgages to consumers, and it could be among the factors behind the July property cooling measures.

Ravi Menon, Monetary Authority of Singapore managing director had in early July warned of "euphoria" in the property market.

"We're also telling individuals who purchase property to be careful. Interest rates are rising, be cautious of debt servicing burdens, avoid taking on too much leverage when buying a house.

"We're also telling the banks to be careful when underwriting, there's euphoria now, everything looks good," Mr Menon had said then.

For those on floating rate packages, whether it's fixed deposit rate-based or Sibor linked, they have or will be getting repricing letters from banks like DBS, OCBC, UOB and Standard Chartered.

OCBC chief executive Samuel Tsien in his Q2 results briefing this month said the bank will re-price mortgages in the second half of the year.

From now to the end of the year, the bank will look to re-price mortgages where the all-in rate is below the Sibor, he said.

A DBS Bank borrower recently received her second repricing letter which said her new instalment which kicks in in October will be S$10,518, just S$12 above her April instalment of S$10,506. But compared to the January monthly instalment of S$10,140, the difference is a heftier S$378 more per month.

The interest rate on her loan has risen 40 basis points from 1.873 per cent in January to the present 2.271 per cent.

Tok Geok Peng, DBS head of secured loans, said the customer who has her loan repriced twice probably holds a Sibor-based mortgage. Sibor-based mortgages can be more volatile since they are a function of Sibor movements.

For those with fixed deposit home loan rate (FHR) packages, they would have one repricing letter.

FHR packages generally move at a more gradual pace as banks usually reprice fixed deposit rates at a glacial speed, as long suffering savers will testify.

Other banks which sell FHR packages told The Business Times there has only been one repricing so far this year.

DBS has adjusted its SGD fixed deposit rates this year, in line with rising market interest rates, said Ms Tok. "As a result, our fixed deposit home loan rates (FHR), which references our SGD fixed deposit rates, increased accordingly," said Ms Tok.

DBS pioneered the FHR-based mortgage in 2014; since then some 9 out of 10 of its customers opt for FHR loans.

Over at StanChart, a spokeswoman said the bank regularly reviews its mortgage interest rates and aligns them with prevailing market conditions. "The last rate revision for the 48-month fixed deposit rate on home loan was in March 2018, and there has been no revision since," she said.

The bank has stopped offering 48-month FDR packages and the current fixed deposit-linked rate is pegged to the 36-month fixed deposit board rate, said the StanChart spokeswoman.

Koh Ching Ching, OCBC head of group corporate communications, said: "We have repriced parts of our home loans portfolio with an average increase of 0.30 per cent across loan packages, aligned with repricing in the industry since early this year."

"Loans that have been repriced were generally priced below the funding cost," Ms Koh said.

UOB's fixed rate home loan packages have been popular as customers take advantage of locking in interest rates that have been at historic lows, said a bank spokeswoman.

"The average revised rate will be from 1.75 to 1.95 per cent per annum which is in line with market rates. This means a customer can expect to pay an average of S$20 more per month for every S$200,000 outstanding on their home loan," said the UOB spokeswoman.

For a S$1 million outstanding loan, a 20 and 30 basis points increase will mean S$95 and S$140 increases respectively in monthly instalments, according to DBS' calculations.

Those who have passed their lock-in periods can sign on to a new package, typically priced low to retain existing customers and entice new borrowers.

"If clients' loans have passed the lock-in period, we offer the option of repricing their loans to other mortgage packages," said the StanChart spokeswoman. StanChart will waive the repricing fee for existing clients who wish to reprice their loans after the two-year lock-in period.

New packages are priced low to get the business but could also face interest rate hikes 6-12 months later, said Darren Goh of mortgage broker MortgageWise.sg.

Adapted from The Business Times, 15 August 2018.