Bank home loan hikes of interest rates unlikely to dampen demand

The recent bank home loan hikes of interest rates are unlikely to dampen demand for both public and private properties.

Bank home loan hikes

The bank home loan hikes will have minimal effect unless the interest rates for mortgages edge past 3 per cent.

Meanwhile, resale prices for public homes rose 2. 8 per cent from the previous quarter, which is slightly higher than the 2. 6 per cent in flash estimates provided by HDB earlier this month.

The resale price index, which provides information on the general price movements in the resale public housing market, was 163. 9 in the second quarter — an increase from 159. 5 in the previous quarter.

As for private homes, prices rose at a quicker pace of 3.5 per cent in the second quarter of this year, five times the 0.7 per cent increase in the previous quarter.

The private residential property price index increased to 180.9 in the second quarter, up from 174.8 in the preceding three months, according to URA’s data.

“As long as the sentiments are positive, I do not see interest rates as being a very big deterrence for people buying property,” said Mr Paul Ho chief officer at iCompareLoan.

The bank home loan hikes have not affected the public housing resale market substantially, as the loan quantum of most HDB flats is not high, and most homeowners are not over-leveraged.

“As for the private residential property market, most existing homeowners should be able to service their home loans now. However, the bank home loan hikes of interest rates are more likely to be keenly felt once they edge past the 3 per cent mark,” said Mr Ho.

The total debt servicing ratio (TDSR) threshold for property loans uses a stringent 3.5 per cent interest rate computation which should be sufficient buffer for rates to move before monthly mortgage obligations exceed borrowers’ gross monthly income.

“For buyers of HDB flats and are taking up an HDB loan, the good thing about it is that they have the flexibility of refinancing to a bank loan if they ever change your mind because it does not have a lock-in period. But if they are taking a bank loan, there is no way they can refinance to an HDB loan,” said Mr Ho.

“They should also read up on good guides on refinancing in Singapore,” he added.

Buyers will only likely start going easy on investing if the positive property market once the interest rates go up to 4 or 5 per cent with bank home loan hikes, and affect their disposable income.

The increased public housing supply with launch of more BTO flats in the second half of this year is expected to draw demand away from the resale market. This is also expected to regulate the pace of price growth and tame market exuberance.

As for the prices of new homes, excluding executive condominiums, prices may rise by 6 to 9 per cent this year as compared with 2021, while around 9,000 to 10,000 units may be transacted.

On the whole, the resale market prices for 2022 may increase by between 6 and 8 per cent from the previous year.

Positive side of interest rate environment

Today, consumers have a wide range of home loan packages to choose from compared to several years ago, and this is a huge advantage to home buyers and investors.

Home loans could also be tied up with other programmes which rewards customers with a higher interest rate on their deposits if they transact more with the bank, such as getting a home loan and crediting their salary with the same bank.

Typically, with mortgage loans you are offered attractive rates for the first three years when you refinance – following which the interest rates are adjusted upwards. This usually coincides with the end of the lock in period, offering borrowers a good opportunity to relook their loans.

Those who already have a home loan with a lender you are comfortable with, should consider repricing, especially with the recent bank home loan hikes of interest rates.

Repricing refers to switching to a new home loan package within the same bank while refinancing refers to closing your current home loan account and setting up a new home loan account with another bank.

A repricing typically occurs when new incremental loan facilities and/or refinancing facilities are introduced into the same documentation as an existing loan. The proceeds from the new incremental loan facility will have a lower margin and will be used to repay the existing loan.

While repricing lets you replace your existing loan with a new loan with the same lender that potentially has a new interest rate or revised repayment timeline, refinancing might be a good option if interest rates have dropped or are lower than your current rate, or if you need to extend your repayment term.

When considering refinancing versus repricing, remember that securing a lower interest rate will reduce your cost of borrowing so you’ll pay less on your home loan, overall.

Written by Ravi Chandran

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