Banks drop some fixed-rate home loans amid interest rate uncertainty

A customer uses a DBS Group Holdings Ltd automated teller machine (ATM), standing between the ATMs of United Overseas Bank Ltd and Oversea-Chinese Banking Corp. Ltd. PHOTO: BLOOMBERG

A number of fixed-rate mortgage plans have been pulled from the shelves lately, as banks grapple with uncertainty over the pace of interest rate hikes.

Market watchers noted that several banks are trying to ensure their margins are not squeezed by cheaply priced fixed-rate packages.

Ms Grace Cheng, co-founder of personal finance website, told The Straits Times: "For example, Maybank removed its two-year, 1.6 per cent fixed- rate package in mid-November."

She said that earlier this week, Bank of China removed its two-year fixed-rate packages, starting from 1.4 per cent, while DBS removed its five-year, 1.99 per cent fixed-rate package.

Bank of China and Maybank did not respond to queries by press time. A DBS spokesman said the five-year offer ended because it was only a temporary promotion.

DBS has a three-year, 1.88 per cent fixed-rate loan, while OCBC is offering a two-year, 2.38 per cent loan.

United Overseas Bank (UOB) has one of the best fixed-rate offers in town - a two-year, 1.8 per cent loan - but apparently not for long. chief executive Vinod Nair said this deal has Jan 1 as its last submission date.

Such withdrawals of plans are normal reactions to market forces, said Mr Nair.

"Analysts in these banks are likely forecasting the interest rate uptrend to continue and, hence, have increased rates to protect their margins," he said.

Unlike floating- or variable- rate packages, fixed-rate loans are locked and offer certainty to borrowers.

Low interest rates allowed banks to offer competitive pricing, but this may soon prove hard to swallow.

How fast interest rates will rise next year has become a concern since earlier this month, when the United States Federal Reserve hinted that there may be up to three increases next year.

The Singapore interbank offered rate (Sibor) has been gaining in tandem, with the three-month Sibor sitting at around 0.966 per cent this week - the highest since late June.

The three-month Sibor - one of the key benchmarks that banks use to price home loans - could hit 1.35 per cent in the second quarter of next year and 1.6 per cent in the fourth quarter, according to Nomura's forecasts.

Ms Cheng said: "We expect to see further home loan interest rate changes in the upcoming weeks as the Chinese New Year period draws near, which is typically a time when banks update their rates."

Against this backdrop, those hoping to buy new homes or refinance their mortgages with good fixed-rate offers may have to act fast. Consultant Pamela Ng, 35, who is looking to sell her home to buy a new one, is unsure whether she would be missing the window for a good deal.

She said: "I have a lower risk profile and prefer fixed rates… My current concern is whether I will still be able to lock down a fixed- rate home loan next year when we have sorted out our plans for the new apartment."

A UOB spokesman said mortgage rates are reviewed according to market conditions, and urged home buyers to set aside sufficient funds to manage potential rising rates.

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A version of this article appeared in the print edition of The Straits Times on December 29, 2016, with the headline Banks drop some fixed-rate home loans amid interest rate uncertainty. Subscribe