SINGAPORE’S mortgage rates have eased since the start of the year, with some foreign banks shaving rates by around 50 basis points to 2.5 per cent from the 3 per cent offered earlier.

Based on data consolidated on mortgage broker Redbrick Mortgage Advisory’s platform as at Nov 4, banks in Singapore offered home loans with fixed interest rates ranging from 2.45 per cent up to 3.5 per cent.

Fixed mortgage rates were around 3 per cent at the start of this year, and much higher – up to 4.25 per cent – at the start of 2023, according to boutique mortgage consultancy firm Mortgagewise.sg.

The lowest offer so far this month, at 2.45 per cent, was from the Bank of China (BOC) with a lockin period of three years. Standard Chartered and Maybank had 2.5 per cent packages, while local lenders such as DBS, OCBC and UOB offered fixed home loans starting from rates of 2.55 per cent to 2.6 per cent.

The Business Times understands that such rates are typically deviated or “below-the-line” rates, offered directly to clients or mortgage brokers, and are not posted publicly on banks’ websites.

Redbrick Mortgage Advisory associate director Clive Chng said that rates have been gradually declining since the start of 2023 and eased further in the first half of 2024, when talk first emerged about potential rate cuts as inflation eased in the United States.

The three-month compounded Singapore Overnight Rate Average (Sora) rate, which floating rate packages are pegged to, has been coming down – from 3.7018 per cent at the start of this year to 3.3658 per cent as at Monday (Nov 4).

Chng noted that following the US Federal Reserve’s cut of 50 basis points (bps) in mid-September, most banks in Singapore lowered mortgage rates by five to 10 bps, with only the BOC slashing rates by a larger amount in a knee-jerk reaction, as most lenders had already priced in lower rates before the Fed announcement.

Michael Makdad, senior equity analyst at financial data provider Morningstar, said that some players may be offering lower rates as part of their business strategy or shorter-term business tactics.

“It’s possible that a particular bank may offer better rates on certain types of loans if it has a recent inflow of current deposits for whatever reasons, as banks can usually earn better risk-adjusted returns on loans than on securities,” Makdad said.

Some banks could also offer lower and more attractive rates to increase their local market share of mortgages as part of their longerterm strategy, or perhaps they lack the power in distribution channels that larger banks have, and “so slightly better pricing is how they can attract customers”, he said.

Redbrick’s Chng added: “In BOC’S case, access to potentially relatively inexpensive funding through various international channels may enable them to offer more competitive rates.”

Local banks have the flexibility to maintain rates within a stable range, given their strong brand equity and extensive customer base, said Chng. “This gives them some pricing power to set the market standard without needing to follow the more aggressive moves of banks like BOC immediately, which then makes BOC’S rate look attractive.”

At the same time, market watchers pointed out that the 10 to 15 bps difference between banks’ mortgage rates is hardly significant.

“(Most banks) are already offering 2.5 per cent, so it is a very small margin of difference,” added Chng. This is especially when compared with the 3 to 4 per cent rates offered last year.

Growing home demand

Propnex chief executive officer Ismail Gafoor reckoned that the Fed’s September rate cut and the signalling of further easing in the next two years has boosted homebuyers’ confidence in Singapore and lifted market sentiment.

“In a way, it has given buyers a bit more visibility as to how interest rates may move in the next couple of years. And, since home financing is usually a long-term undertaking, it is helpful for them to know that the periods of sharp rate hikes are behind them,” said Gafoor.

This, in turn, appears to have improved home sales in Singapore’s slowing property market.

Lee Sze Teck, Huttons Asia senior director of data analytics, noted that there has been a bump in demand for new homes since September.

New launches such as Bukit Sembawang Estate’s 8@BT in Upper Bukit Timah, Meyer Blue by UOL Group along Meyer Road, and City Developments Ltd’s Norwood Grand in Woodlands, all witnessed take-up rates of more than 50 per cent. Prior to that, just one out of six major projects launched between January and June sold more than half its stock in the first month of its launch. OCBC head of home loans Maryanne Phua said the bank is also starting to see an increase in loan applications and expects the number of purchase applications to rise in the coming weeks with more new launches.

Six more projects are being launched this month with some 3,500 units on offer, and showflats were packed over the weekend as agents geared up to close sales. The burst of activity follows months of weak sales and few new projects being marketed.

Historically, overall property transaction volumes are generally higher in seasons of low interest rates, said ERA key executive officer Eugene Lim.

“Having lower interest rates also makes it easier for (prospective) buyers to take proactive steps to commit on their purchases,” he said. “Conversely, we have seen that high interest rates led to some buyers postponing their house hunting.”

Still, market watchers emphasised that lower home loan rates, while important, may not be the defining factor to push many Singapore homebuyers towards a purchase.

Nicholas Mak, Mogul.sg chief research officer, noted that in markets in the US, Australia or the United Kingdom, which have a large number of renters, falling mortgage rates may lead renters to start moving to purchase a home.

But in Singapore, most start their home-ownership journey with a Build-to-order public housing flat that is already significantly subsidised, and are therefore not as influenced by changes in interest rates, said Mak.

Market-cooling measures are likely to have a larger impact on home demand than interest rates, he added.

ERA’S Lim noted that the Monetary Authority of Singapore’s industry-wide stress test rate, which is used to calculate borrowers’ monthly mortgage payments, remains unchanged at 4 per cent.

“So, while interest rates have come down and may be expected to further decrease should the Fed cut rates some more, the unchanged stress test rate continues to impact loan size and therefore househunting budgets,” said Lim.

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Credit: The Business Times