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Banks to bump up rates by between 0.25 and 0.8 percentage point

HOME owners are about to be slugged with another round of mortgage rate increases with hikes ranging from 0.25 to as much as 0.8 percentage point.

Banks yesterday blamed the increases, which will hit existing borrowers and new clients when the hikes kick in, on the higher costs they face in obtaining funds for lending.

DBS Bank is bumping up the rates on its fixed and floating home loan packages by 50 basis points, or 0.5 percentage point.

The increase, which applies to owners of private property and HDB flats, takes effect at the end of next month.

This will mean that a customer who borrowed up to 80 per cent of his property’s value on a floating rate package will be charged an annual interest rate of 3.75 per cent in his first year - up from 3.25 per cent.

Home owners on fixed rate packages are affected only if their loans have crossed the agreed period, which can be between one and 10 years in the case of DBS loans.

United Overseas Bank is raising rates across the board for existing customers by an average of 0.5 percentage point, starting from an increase of 0.25 percentage point.

HSBC Bank’s increase is sharper - 0.8 percentage point - and kicks in on March 13.

Standard Chartered Bank (Stanchart) said it will raise rates next month for some clients but did not provide details.

The new rates would be ‘competitive and in line with industry rates’, it said.

Citibank raised rates this month but only on its floating home loans.

It said that at least 20 per cent of customers were unaffected, but the bulk of those hit saw rates rise 0.5 percentage point.

Maybank and OCBC Bank both said they were reviewing the situation, but industry observers, noting that banks tend to move in unison on rates, expect them to follow suit soon.

The latest round of increases comes after a series of revisions last year which saw home loan rates go up between 75 and 150 basis points.

Banks said they had to raise rates given the rising costs of getting funds to support their lending activities.

A Stanchart spokesman said: ‘While we sought initially to absorb the increase in cost of funds to lessen the impact on our customers, this is not sustainable in the long run.’

The key three-month Singapore Interbank Offered Rate (Sibor) - a measure of how much it costs banks to borrow from each other - has been climbing since the end of August last year where it was about 2 per cent.

It now stands at almost 3.4 per cent and is expected to rise further given that the United States Federal Reserve’s key benchmark interest rate, to which the Sibor is strongly correlated, is expected to continue going up.

Daiwa Institute of Research analyst David Lum said: ‘Once there was a view that there might be some relief but given what the Fed has been saying, there’s no reason to expect interest rates to come down in the near term.’

Singapore’s economy is also on a roll, he noted.

‘Unemployment is extremely low and the property market looks to be stable.

‘All these factors support why it is about time to raise rates,’ he said.

Banks would not say how many more mortgage rate hikes are in store this year.

However, Citibank Singapore’s business director for the secured assets group, Mr Tan Chia Seng, said: ‘We will not rule out the possibility given the uncertainty of the interest rate environment.’

He added that the bank’s five-year fixed rate package was popular with customers concerned about rising rates.

Source : Straits Times - 23 Feb 2006