SINGAPORE — After a series of sharp increases, the fixed-rate mortgage packages of some local banks began to rise and fall, and the annual interest rate of some packages has fallen below 4%.
OCBC told MediaCorp’s English-language news site CNA that its promotional rates, launched in mid-December last year, were 4.25% and 3.9% per annum for the two-year and three-year fixed loan packages, respectively. The former was at 4.3%, while the latter was at 4% when it was first launched last month. The annual rate of the bank’s one-year fixed-rate package remained unchanged at 4.3%.
OCBC is the only local bank to have renewed its fixed-rate home loan package since November last year when it joined DBS and UOB in raising mortgage rates to 4 per cent following another sharp hike by the US Federal Reserve above.
Interest rates of foreign banks slightly lowered
Two foreign banks, Standard Chartered and Citibank, also saw a slight cut in mortgage rates, as observed by the local real estate sales platform PropertyGuru.
Standard Chartered’s two-year fixed-rate home loan package, for example, is currently at 3.85% annualized, down from a peak of 4.5% in late November last year.
The minimum two-year fixed-rate home loan for Citibank Citigold members is $800,000, and the annual rate has dropped to 3.85 per cent from 4 per cent in December, according to PropertyGuru.
Both banks declined to comment on the rate change. In response to CNA’s inquiries, Standard Chartered said only that it regularly reviews its home loan products and makes adjustments based on market conditions.
Uncertainty prompts banks to review home loan packages
Last year, banks conducted a quick review of their lending rates as central banks raced to raise rates to tighten monetary policy. In particular, mortgage interest rates have exceeded the 4% mark, reaching a new high in recent years.
Alfred Chia, chief executive of financial planning company SingCapital, pointed out that maintaining the competitiveness of packages may be one of the reasons why some banks’ fixed rates for mortgages have come down from their highs.
“At one stage we saw fixed rates (annualized) as high as 4.5 per cent, but that was only for a very short period of time and the competition brought it down to around 4 per cent.”
Paul Wee, Vice President of Finance and Economics at PropertyGuru, pointed to other reasons, including market expectations that the Federal Reserve will slow down rate hikes this year, as well as fluctuations in the Singapore Overnight Rate Average (SORA) in the last three months.
SORA had a roller-coaster ride in December, approaching 4% at the beginning of the month and dropping to 1.65% by Dec. 30.
Paul Wee said the decline could be due to lower U.S. inflation data and concerns about the state of the U.S. economy, both fueling market expectations for a less hawkish Fed.
“In such a market, banks are likely to keep a close eye on their fixed rate packages and adjust them to keep pace with SORA rates and market expectations,” he added.
Nonetheless, SORA has recovered, reaching as high as 3.8% for the week. This reflects a range of uncertainties that persist in the macro environment and, in turn, the likelihood that mortgage rates will continue to fluctuate.
“The era of low interest rates is over”
Several Fed policymakers said this week that they would support continued interest rate hikes and a top target rate of at least 5 per cent, despite signs of peaking inflation and slowing economic activity, according to reports.
Alfred Chia said: “The general consensus is that the Fed’s interest rate will rise to 5%, but the challenge is whether the Fed will turn around at that time. They are trying to do a balancing act between inflation and recession. But there is also a geopolitical situation, the war in Ukraine is still going on, so I think that’s an uncertainty that homeowners need to take into account.”
Even if the Fed eventually pivots to cutting rates, rates are unlikely to return to pre-pandemic levels, he added. “Unfortunately, the era of low interest rates is over,” he said.
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