More consumers are looking to lock in fixed rates for their home loans over concerns about the prospect of rising interest rates. On Tuesday, Singapore’s central bank warned that borrowers who over-extended themselves could be at risk, should mortgage rates increase.
Given low interest rates over the past few years, many home buyers have opted for floating rate loan packages. However, market players said there has been a jump in queries from new home buyers and existing mortgage loan holders seeking fixed rates.
Timothy Kua, director of SmartLoans.sg, said: “Now, banks on the other hand, are also either increasing (the rates) on their fixed rate packages, (raising) the rates by anywhere from 0.1 to 0.2 per cent over the past two weeks, or even pulling out their fixed rate packages altogether in anticipation of the surge in demand and rising interest rates.”
A sudden spike in interest rates could mean that some borrowers may not be able to meet their loan repayments. That is why the Monetary Authority of Singapore has moved in to restrict excessive lending by banks.
However, prior to stricter loan approval guideline put in place last month, loan growth has already been slowing to due to curbs on the property market.
Alfred Chan, director of financial institutions at Fitch Ratings, said: “The amount of new loans being booked — such statistics are not available but based on my understanding, because of the cooling measures, new housing loans have slowed quite dramatically.
“So there is definitely going to be an impact at some point in time.”
Lesser money made off home loans could translate to lower revenue for banks, but they can look to other business streams, as well as higher interest rates to boost their margins.
For now, the concern is a build-up of leverage among households.
To avoid a “hard landing” and increase in bad debts, Phillip Futures said the Singapore central bank is likely to ensure ample supply of the Singapore dollar in order to keep interest rates low for the time being.
That means it is unlikely for the Singapore dollar to strengthen in the near term.
Source – CNA – 26 Jul 2013