Consumers and corporates in Singapore like the stability of Singapore Overnight Rate Average (SORA)-based interest rates, with more than six in 10 respondents to a recent UOB survey saying they are open to choosing SORA-pegged products.
UOB conducted an online survey in January 2021 on more than 300 individuals (including business owners) to understand public awareness and acceptance levels of SORA.
Respondents to the survey said the certainty, transparency and stability of the reference rate of their loan were the key considerations when choosing a loan package. The survey also found that more than half of the respondents said they would consider choosing a SORA-pegged loan. However, as consumers are still familiarising themselves with SORA-pegged products, seven in 10 (70 per cent) said they would only apply for one within six to 12 months of the product becoming available.
SORA is an interest rate benchmark based on the average rate of unsecured overnight interbank Singapore dollar transactions brokered in Singapore.
The increasing awareness and acceptance of SORA-pegged products bode well as the financial industry intensifies a coordinated shift to SORA this year. Financial institutions, including banks, will cease to reference the Swap Offer Rate (SOR) in new products by end of April 2021 and actively help their customers with legacy SOR contracts transit to SORA.
The use of SIBOR in new loan products will also cease by end of September 2021 to reinforce the shift for the Singapore dollar financial markets to a SORA-based interest rates market.
Mr Eddie Khoo, Head of Group Retail, UOB, said, “UOB has been working closely with the industry on Singapore’s transition to the new reference rate SORA. We understand consumers and small- and mediumsized enterprises want transparency and stability in the reference rate of their loan packages, as this helps them plan their finances better. As a leading provider of property loans in Singapore, our SORA-pegged property loans offer customers greater certainty and clarity, which will help to increase their confidence in and adoption of more SORA-based financial products.”
In support of the market transition to SORA-based interest rates, UOB launched its first SORA-based residential and commercial property loan solutions in December 2020. The Bank’s three-month compounded SORA-based property loans come after the Bank’s issuance of Singapore’s first dual tranche SORA-SOFR corporate loan to CapitaLand in September 2020.
Offering customers greater stability and flexibility
The interest rates of UOB’s SORA-pegged property loans will be reviewed and set every three months, offering customers more stability on their monthly loan repayments. For example, a homeowner or small business who begins their loan in January will have clarity on their interest rates and repayment amount until April, when the next rate review will happen. In contrast, SOR and SIBOR are forward-looking term rates which are more prone to higher volatility.
Homeowners can choose UOB’s SORA-pegged home loan for their completed private properties or HDB flats. With a lock-in period of just one year, UOB’s first SORA-based home loan provides customers with greater flexibility to reprice their home loan or to sell their property without any penalty should they wish to do so. During the lock-in period, customers with spare funds also have the option to make early repayments up to a minimum outstanding principal amount of S$200,000.
In addition, customers applying for a loan for their completed residential properties can opt for a fixed rateSORA combination package that will give them greater peace of mind in managing their home loan repayments.
Under this loan package, there will be two components in customers’ monthly loan instalments. The first portion will be based on a fixed interest rate with a lock-in period of two years and the second will be based on the three-month compounded SORA with the flexibility to make early repayments during the one-year lock-in period.
Alternatively, customers may also apply for a home loan package with fixed interest rate during the lock-in period and then a three-month compounded SORA for the remainder of the loan tenor.
UOB said that as part of the Bank’s digitalised application process, customers can apply for their SORA-based home loans online using MyInfo and receive instant approval in less than five minutes. It added that for its SME customers, UOB’s SORA-pegged commercial property loans come with a maximum tenor of between 25 and 30 years and are available for purchases of new properties or refinancing.
Mr Paul Ho, chief officer of iCompareLoan, said: “Customers who prefer the 3-month Compounded SORA home loan will benefit from the availability of the Compounded SORA rates that MAS has started to publish since 5 August 2020, which provides users with a transparent and convenient reference to track their loan rates.”
“If they don’t understand the difference between terms like SORA, SIBOR and SOR, it is best if they speak to a loan consultant to understand the differences better,” he added.