Analysts divided on whether this will signal undercutting among the banks
Maybank has fired a salvo that could shake up the home loan market here by slashing its rates. This has led to speculation that banks might start to undercut each other to drum up business. Meanwhile, the banks themselves are adopting a cautious stance in a falling interest rate environment that could change direction.
For a three-week period, Maybank is launching a promotional three-year fixed rate home loan package which is the lowest of all the banks surveyed.
Home-owners pay 1.68 per cent per annum for the first year, 2.68 per cent pa for second year and 3.38 per cent pa for the third year. The rates apply to both HDB and private home loans. Homeowners are subject to a three-year lock-in period and fees will apply in case of early redemption, prepayment and cancellation during that time.
Before this promotion, the Qualifying Full Bank's rates stood at 3.58 per cent pa for all three years. Maybank's new first-year interest rate is about 40 per cent lower than similar packages being offered in the market (see table). But it has a lock-in period of three years while other banks generally have a two-year lock-in.
Helen Neo, head, consumer banking, Maybank Singapore, explained that interbank rates have softened over the past few months. 'However, we expect interest rates to rebound in view of rising inflation in Singapore,' she said. 'Against a backdrop of potential rising interest rates, home loan customers who take up this fixed rate package will enjoy the prevailing low rates and are protected from future interest rate increases for the next three years.'
Mortgage rates are affected by the Singapore interbank offer rate (Sibor) - the rate at which banks lend to one another. Sibor has been on a downward trajectory since late last year, after hovering around 2.5 per cent.
Yesterday, the three-month Sibor fell to 1.44 per cent, its lowest level since December 2004. Economists say it is expected to go even lower by mid-year, partly due to the US steadily cutting its key interest rate. Sibor takes its cue from interest rates in the US, and last month the US Federal Reserve slashed its key interest rate from 4.25 per cent to 3.5 per cent, and then to 3 per cent.
Maybank's move to reduce rates is prompting speculation among mortgage consultants that banks could follow suit with foreign banks leading the way. 'I'm not surprised that this round of interest rate reductions is led by foreign banks again,' said Dennis Ng, spokesman for Mortgage Consultancy Portal www.HousingLoanSG. com. 'From past experience, local banks have typically lagged behind foreign banks in adjusting interest rates down.' This is because the three local banks have the lion's share of the housing loan market. 'If they reduce interest rates, they have more to lose,' said Mr Ng. While cutting rates would let them gain some more business, the advantage would be neutralised if their existing clients start paying lower rates.
But with Sibor falling, other banks could follow suit in lowering their interest rates, Mr Ng said. The last time banks were seen aggressively undercutting each other on rates was in 2003-2004, where foreign banks actively led the charge in introducing lower rates.
Leong Sze Hian, president of the Society of Financial Service Professionals, agreed that banks would be nudged into lowering their rates. 'Sibor rates are dropping and once Maybank lowers its rates, everyone will follow, otherwise customers will move,' he said.
However, consultants like Tang Yin Fong, a mortgage advisor at wealth and investment outfit Providend, said local banks already have Sibor-linked packages which track the movement of Sibor, and do not need to lower rates to be competitive.
'Such packages have been relatively attractive in the current lowered Sibor environment and have since been the main packages that the banks recommend to homeowners,' she explained.
She also added that in the current situation where the Singapore property market still seems to be on the rise and more homeowners are seeking mortgage loans, banks may be less willing to lower their interest rates.
Meanwhile, DBS Bank said it has 'no plans to adjust rates' for now, while OCBC and United Overseas Bank both said they would monitor the situation before making a decision.
Foreign banks Citibank and Standard Chartered shied away from saying if they will review rates but pointed to their Sibor packages, which they say give customers control in repricing loan packages. Stuart Kamp, head of mortgages, Standard Chartered Bank, added, 'We expect interest rates to trend down over the coming months.'
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