Home owners face the prospect of bigger mortgage payments, as a benchmark interest rate continues its relentless rise.
Many home loans here are pegged to the three-month Singapore Interbank Offered Rate (Sibor), which rose 7.4 per cent yesterday to 0.62052 per cent, a level not seen since April 2010.
The rise in Sibor followed Monday's 26.3 per cent jump to 0.57762 per cent from last Friday's 0.45738 per cent.
Rates have taken a sudden upturn this week, though they have been climbing since August as the US dollar gained value. Sibor stayed near 0.4 per cent from last January till August. At the end of August, it crept up to around the 0.41 per cent to 0.42 per cent level, before picking up speed last month to hit the 0.44 per cent to 0.45 per cent mark, after the US Federal Reserve's policy statement.
The Fed said last month that it would be patient in keeping monetary policy loose, though interest rate hikes would come eventually.
Another factor putting pressure on Sibor is that the Singdollar has been declining against the greenback, falling to 1.3217 last month.
Bank of America Merrill Lynch economist Chua Hak Bin said the "very sharp rise" in Sibor could be driven by factors such as an expected hike in the Fed funds rate, which is closely linked to Sibor. Also, since the start of this year, local banks have had to set aside more funds as a buffer, under the Basel III global banking rules.
Sibor, the rate at which financial institutions borrow from one another, could rise further.
Bank of America Merrill Lynch forecasts that the three-month Sibor will reach 0.7 per cent by the end of the year; Citi predicts it to be 0.8 per cent, while United Overseas Bank has it at 1 per cent.
"While an increase of 30 to 40 basis points is still manageable, it is a warning sign that households should be prepared for higher rates," said Dr Chua. Mr Alfred Chia, chief executive of financial advisory firm SingCapital, which specialises in mortgage refinancing, said about 60 per cent of his clients are on floating mortgage rates; these are mostly pegged to Sibor, with a premium tacked on by banks.
Based on industry estimates of a premium of around 0.9 per cent for the first year, a 30-year $500,000 loan would see the monthly instalment rise $52.51 to $1,730.53, with Sibor up from 0.4 per cent to 0.62052 per cent.
"I don't think we have reached any panic level yet as those on floating rates are still seeing Sibor below 1 per cent, but this is a good time to relook options on refinancing," said Mr Chia.
New home owner Huang Sijia, 26, who took out a Sibor floating loan last year, is sticking to her package for now. "I am not too worried because the interest rates have been quite stable for the past three years," said the consultant.
Wednesday, Jan 07, 2015
The Straits Times
Source: AsiaOne (7 Jan 2015)