UOB and DBS ceasing fixed-rate home loans for now, interest rates under review

UOB and DBS are reviewing the interest rates on fixed-rate packages after a big hike from the US Federal Reserve. ST PHOTO: KUA CHEE SIONG

SINGAPORE - Local lenders UOB and DBS Bank are temporarily ceasing their fixed-rate home loans while they review the interest rates on these packages, after yet another big hike from the United States Federal Reserve.

A UOB spokesman told The Straits Times that the bank will be ceasing the existing two-year and three-year fixed rate packages for now.

The spokesman added that UOB is continuously monitoring market conditions and will review home loan packages to ensure they remain competitive and can meet the needs of home owners.

Mr Wayne Quek, director of mortgage consultancy Home Loan Whiz, said he has received a notice that the UOB packages will not be available after Oct 5.

Just about two months ago, UOB had upped the rates for its two- and three-year fixed rate packages.

The rate was raised to 2.98 per cent per annum for its two-year fixed package, and 3.08 per cent per annum for its three-year fixed package.

The bank confirmed that it will not completely remove its fixed rate loans.

Meanwhile, DBS is also reviewing the rates for its fixed rate packages.

According to ST checks last Tuesday night, DBS’s fixed rate packages have been removed from the bank’s website.

Back in June, the bank had raised rates on its two-year and three-year fixed rate packages to 2.75 per cent and removed its five-year fixed-rate package for Housing Board flat buyers, which used to offer loans at 2.05 per cent.

At the time, the bank introduced a hybrid two-in-one home loan package which allowed home owners to choose a mix of fixed and floating rate deals in various proportions, such as 30 per cent fixed and 70 per cent floating.

The bank said this hybrid home loan package is still available to home owners.

The third local bank, OCBC, said it reviews the rates of its home loans packages regularly to ensure they remain competitive.

Currently, OCBC has a two-year fixed rate package at 2.98 per cent listed on its website.

Mortgage brokers that ST spoke to said the local banks will always have fixed rate loans.

Mr David Baey, chief executive of Mortgage Master, said local banks have cheaper costs of funds because they have more deposits compared with the foreign banks.

This pool of deposits has, however, become more expensive as the banks raise the rates they offer for fixed deposits and savings accounts, noted Mr Clive Chng, associate director of mortgage broker Redbrick Mortgage Advisory. 

But the local banks’ relatively larger pool of deposits means they have the flexibility to offer fixed rate packages and still earn a nice margin, he added.

The total debt servicing ratio framework, which refers to the portion of a borrower’s gross monthly income going towards repaying the monthly debt obligations, has a stress-test interest rate of 3.5 per cent.

Mr Chng said if interest rates here go higher than 3.5 per cent, that higher rate will be used to calculate monthly loan repayments.

This means the individual can borrow only a lower amount, such that his monthly repayments are less than 55 per cent of total income, Mr Chng added.

The three banks continue to offer floating rate packages pegged to the Singapore Overnight Rate Average (Sora).

The daily Sora rate rose by about 0.3 percentage points on Friday following the Fed’s decision to raise interest rates by 0.75 per cent on Wednesday.

The daily Sora rate is at 1.9389 per cent, while one-month compounded Sora is at 2.0443 per cent and three-month compounded Sora is at 1.9009 per cent.

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