Source : The Business Times, August 25, 2008
Repossession orders in H1 jump 48% as price slide continues
HOME repossessions have surged to a 12-year high in the UK, as lenders take a tough line on debt-ridden owners. And the outlook for the rest of the year looks bleak, as house prices continue to fall.
Figures released by the Council of Mortgage Lenders (CML) show the number of home owners subject to repossession orders in the first half of the year was up 48 per cent to 18,900.
As property economist Kelvin Davidson of consultancy Capital Economics said: 'There's no denying the figures will rise further. We are talking pretty big falls in property prices.'
The news has triggered criticism in some corners of a harsh stance taken by lenders, and comes amid a warning that repossessions for full-year 2008 are likely to hit 45,000, up from 26,200 last year.
CML has said the figures are no surprise but stresses the 45,000 statistic is small relative to the 11.74 million mortgages in the UK worth more than £1.2 trillion (S$3.1 trillion). However, it noted that a dramatic reduction in credit availability is taking a toll on borrowers, as it tends to rule out remortgaging.
At the same time, credit ratings agency Standard & Poor's estimates that one in six home owners in Britain will be in negative equity by the end of 2009 if house prices continue to fall.
Mr Davidson said the figures have been largely anticipated, but the rate of acceleration seems to be much faster than expected. 'I guess in terms of risk, everything has moved much faster than what people thought,' he said.
Lenders have been aggressive in seeking recourse against errant home owners, with Ministry of Justice figures showing the courts made 28,658 repossession orders in England and Wales in the second quarter of 2008, an increase of 24 per cent from the same period last year.
Housing charity Shelter has accused lenders of using the courts as the first rather than last resort.
The charity's chief executive Adam Sampson has dubbed the rise in repossessions 'simply staggering'.
'The real horror is that struggling home owners today have less protection than in the 1990s, but most people don't even realise it,' he said.
The charity has seen an increase in the number of people fearful of losing their homes. 'They are being punished by rising household bills, escalating fuel charges and food prices that are going through the roof,' Mr Davidson said.
He urged lenders to be more flexible. 'They must play their part and ensure they look at all options before rushing to court. They must use repossession as the last rather than first option. The government needs to show it really is on people's side when they face the threat of repossession.'
According to the UK Financial Services Authority, lenders have largely complied with standards for treating customers in arrears. It has, however, voiced concern that some specialist lenders are more prone to resort to court action.
Mortgage lending, meanwhile, continues to remain subdued in Britain. According to CML, gross mortgage lending totalled £24.8 billion in July, a 27 per cent drop from the same month last year.
Monday, August 25, 2008
Financial Downturn 'To Drag On': BoE Official
Source : The Business Times, August 25, 2008
LONDON - The Bank of England's new deputy governor warned on Monday that the global financial slowdown could 'drag on for some considerable time'.
Charles Bean said that every time the markets began to look like they were becoming steadier, 'another grenade' exploded.
He said the downturn was at least as bad as in the 1970s, but predicted growth would pick up and inflation fall next year, provided oil prices and credit markets stabilised.
Mr Bean described the crisis as a 'transitory period' that would pass.
The deputy governor, speaking to the BBC from the annual conference of the world's top central bankers in Jackson Hole, Wyoming, said bankers attending last year's event believed the crisis would have been over by the end of 2007.
In fact, it had carried on for a year and every time the markets appeared to be stabilising, fears over the credit crunch tossed 'another grenade' into financial institutions.
He said the mood at the conference was one of 'considerable caution for the next year'.
'It looks like it will drag on for some considerable time further yet,' he said.
'We've got our fingers crossed that things will improve. But there is the recognition that there is still a long way to go yet.'
Mr Bean said it would be 'foolish to believe' a global financial downturn could be prevented from happening again, but he said regulation could be improved to 'reduce problems when they occur'.
Mr Bean, who took over as deputy governor this year, also warned against reading too much into the latest British quarterly growth figures, which showed the economy at a standstill.
The Office for National Statistics figures, released this month, showed no growth from the first quarter of 2008.
The deputy governor said he was hopeful that growth would revive next year and that inflation would fall.
The most important message, he said, was that the crisis would eventually end.
'This is just a transitory period of subdued growth and we will get through the other side and the growth will resume to more normal levels,' he said. -- AFP
LONDON - The Bank of England's new deputy governor warned on Monday that the global financial slowdown could 'drag on for some considerable time'.
Charles Bean said that every time the markets began to look like they were becoming steadier, 'another grenade' exploded.
He said the downturn was at least as bad as in the 1970s, but predicted growth would pick up and inflation fall next year, provided oil prices and credit markets stabilised.
Mr Bean described the crisis as a 'transitory period' that would pass.
The deputy governor, speaking to the BBC from the annual conference of the world's top central bankers in Jackson Hole, Wyoming, said bankers attending last year's event believed the crisis would have been over by the end of 2007.
In fact, it had carried on for a year and every time the markets appeared to be stabilising, fears over the credit crunch tossed 'another grenade' into financial institutions.
He said the mood at the conference was one of 'considerable caution for the next year'.
'It looks like it will drag on for some considerable time further yet,' he said.
'We've got our fingers crossed that things will improve. But there is the recognition that there is still a long way to go yet.'
Mr Bean said it would be 'foolish to believe' a global financial downturn could be prevented from happening again, but he said regulation could be improved to 'reduce problems when they occur'.
Mr Bean, who took over as deputy governor this year, also warned against reading too much into the latest British quarterly growth figures, which showed the economy at a standstill.
The Office for National Statistics figures, released this month, showed no growth from the first quarter of 2008.
The deputy governor said he was hopeful that growth would revive next year and that inflation would fall.
The most important message, he said, was that the crisis would eventually end.
'This is just a transitory period of subdued growth and we will get through the other side and the growth will resume to more normal levels,' he said. -- AFP
Property Stocks Down After UBS Report
Source : The Business Times, August 25, 2008
Most Singapore property shares were down on Monday, with Southeast Asia's top developer CapitaLand sinking as much as 5.2 per cent to a two-year low, as a bearish report on the office market fuelled investor concerns the industry.
UBS analysts said in a report out late on Friday that it expects office rentals and capital values to drop as much as 34 per cent in the next four years, prompting falls in stocks such as CapitaCommercial Trust, UOL Group and Keppel Land.
'The fall has also been caused by the fall in residential prices. The market is set to soften for the next few quarters due to factors such as short selling,' said a dealer.
But dealers said City Developments is bucking the trend to rise 3.8 per cent because of its recent announcement of a $1 billion (US$708 million) Islamic bond programme by the end of this year. CityDev gained 3 per cent. -- REUTERS
Most Singapore property shares were down on Monday, with Southeast Asia's top developer CapitaLand sinking as much as 5.2 per cent to a two-year low, as a bearish report on the office market fuelled investor concerns the industry.
UBS analysts said in a report out late on Friday that it expects office rentals and capital values to drop as much as 34 per cent in the next four years, prompting falls in stocks such as CapitaCommercial Trust, UOL Group and Keppel Land.
'The fall has also been caused by the fall in residential prices. The market is set to soften for the next few quarters due to factors such as short selling,' said a dealer.
But dealers said City Developments is bucking the trend to rise 3.8 per cent because of its recent announcement of a $1 billion (US$708 million) Islamic bond programme by the end of this year. CityDev gained 3 per cent. -- REUTERS
Lian Beng Gets $99.45 Mln Ritz Carlton Condo Contract
Source : The Business Times, August 25, 2008
Lian Beng Group Ltd announced on Monday that its wholly-owned subsidiary, Millennium International Builders has secured a construction contract worth about $99.45 million to build the Ritz-Carlton Residences, Singapore, at Cairnhill.
Construction is expected to begin in the third quarter of 2008 and is targeted to be completed by the fourth quarter of 2010.
Lian Beng Group Ltd announced on Monday that its wholly-owned subsidiary, Millennium International Builders has secured a construction contract worth about $99.45 million to build the Ritz-Carlton Residences, Singapore, at Cairnhill.Construction is expected to begin in the third quarter of 2008 and is targeted to be completed by the fourth quarter of 2010.
MP Reit Refinances $220 Mln Loan
Source : The Business Times, August 25, 2008
Macquarie Pacific Star, the Manager of MP REIT, said on Monday that MP REIT has entered into a $220 million (US$155 million) club deal with three foreign banks to refinance its loans due end September 2008.
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The new two-year loan facility, secured on competitive terms, matures in September 2010.
The $220 million club facility takes a second mortgage security on MP REIT's stakes in Wisma Atria and Ngee Ann City. MP REIT's EUR186.2 million Commercial Mortgage Backed Securities (CMBS) notes, originated in September 2005, are backed by a first priority mortgage loan over these two Singapore properties.
Following the execution of the $220 million club deal, rating agencies Fitch and Moody's have reaffirmed their respective 'AAA' and 'Aaa' ratings for the CMBS.
With the refinancing, MP REIT's gearing remains low at 28.9 per cent.
Macquarie Pacific Star, the Manager of MP REIT, said on Monday that MP REIT has entered into a $220 million (US$155 million) club deal with three foreign banks to refinance its loans due end September 2008.
.jpg)
The new two-year loan facility, secured on competitive terms, matures in September 2010.The $220 million club facility takes a second mortgage security on MP REIT's stakes in Wisma Atria and Ngee Ann City. MP REIT's EUR186.2 million Commercial Mortgage Backed Securities (CMBS) notes, originated in September 2005, are backed by a first priority mortgage loan over these two Singapore properties.
Following the execution of the $220 million club deal, rating agencies Fitch and Moody's have reaffirmed their respective 'AAA' and 'Aaa' ratings for the CMBS.
With the refinancing, MP REIT's gearing remains low at 28.9 per cent.
S$1.8m Integrated Sports Hub Opens In Bishan North
Source : Channel NewsAsia, 24 August 2008
A S$1.8 million sports hub, called Bishan Active, opened in the heart of the Bishan North neighbourhood on Sunday. It is the largest public outdoor sporting facility in Singapore's housing estates.
Mayor for Central Singapore District, Zainudin Nordin, said beach volleyball is featured at Bishan Active because it is hip and popular with the young. He said the Town Council will also look into further improvements, such as adding shower facilities there.
At over 22,000 square metres, the sports hub in Bishan sits on a plot of land that was initially meant for a school. But plans to build the school were deferred and the sports hub was constructed there on a seven-year lease.
Other features at the sports facility include a basketball court, a football pitch and a roller blade track. There is also a multi-purpose sheltered pavilion, which will provide some cost savings to nearby residents.
Related Videos :- http://tinyurl.com/6johcx
"(Putting up a) tentage for a weekend event can cost up to S$11,000 to S$12,000, so you are now able to exploit and take benefit from such a facility," said Mr Zainudin.
It is also hoped that the new facility can kick-start the sporting dreams of young Singaporeans. In fact, the Singapore women's national football team has adopted the pitch at Bishan Active and will be holding training sessions there. Residents will also be able to interact with the players and watch their development.
Bishan Active will be an ideal platform to rally the residents and garner support leading up to the 2010 Youth Olympic Games in Singapore. - CNA/so
A S$1.8 million sports hub, called Bishan Active, opened in the heart of the Bishan North neighbourhood on Sunday. It is the largest public outdoor sporting facility in Singapore's housing estates.
Mayor for Central Singapore District, Zainudin Nordin, said beach volleyball is featured at Bishan Active because it is hip and popular with the young. He said the Town Council will also look into further improvements, such as adding shower facilities there. At over 22,000 square metres, the sports hub in Bishan sits on a plot of land that was initially meant for a school. But plans to build the school were deferred and the sports hub was constructed there on a seven-year lease.
Other features at the sports facility include a basketball court, a football pitch and a roller blade track. There is also a multi-purpose sheltered pavilion, which will provide some cost savings to nearby residents.
Related Videos :- http://tinyurl.com/6johcx
"(Putting up a) tentage for a weekend event can cost up to S$11,000 to S$12,000, so you are now able to exploit and take benefit from such a facility," said Mr Zainudin. It is also hoped that the new facility can kick-start the sporting dreams of young Singaporeans. In fact, the Singapore women's national football team has adopted the pitch at Bishan Active and will be holding training sessions there. Residents will also be able to interact with the players and watch their development.
Bishan Active will be an ideal platform to rally the residents and garner support leading up to the 2010 Youth Olympic Games in Singapore. - CNA/so
HDB Resale Market Going Strong
Source : The Sunday Times, August 24, 2008
Deals of more than $700K are still being done, with demand fuelled by PRs and new families
While sentiment in the private homes market remains gloomy, the market for Housing Board resale flats offers another story.
Deals of $700,000 and above are still being done this year, after 'record deals' of more than $700,000 first surfaced during last year's boom, though these are few and far between.
The good news for sellers is that prices continue to rise, pushing up valuations.
Volume is seen remaining healthy as home seekers continue to check out resale flats, largely oblivious to the credit crisis consuming the world, market watchers said.
Demand for HDB resale flats comes mostly from newly formed families and new permanent residents (PRs), they said.
Mr Leong Sze Hian, president of the Society of Financial Service Professionals, thinks that HDB prices are still rising because there is not enough supply to meet demand.
'For example, last year, there were about 78,000 new citizens and PRs. So they may be buying HDB flats which they may not have been eligible to buy previously,' he said.
HDB flat seekers also include those who are priced out of the private market given that mass market prices there remain relatively strong.
But there is a limit to the gains for an HDB seller. Already, HDB prices are considered high, said Mr Leong.
Also, agents say that buyers are showing more resistance to sizeable cash-over-valuation (COV) amounts. The COV is the cash sum that is paid over and above the valuation of a flat.
It cannot be paid from a home loan or with Central Provident Fund monies.
Generally, once you cross the barrier of $600,000, there will be strong resistance, said the assistant vice-president of ERA Asia Pacific, Mr Eugene Lim.
High-priced transactions have been registered in a few estates such as Marine Parade, Queenstown and Bukit Merah. For instance, a $750,000 deal for a 10-year-old, high-floor 124 sq m unit in Holland Close in Oueenstown was recorded in June.
Once a high-priced deal is done, sellers in the area will raise their asking prices. But these may not be realistic, said Mr Lim.
Increasingly, potential buyers are feeling the pinch of rising costs and negotiating harder for a smaller COV amount, particularly for non-prime flats, he said.
'People are more cost-conscious now.'
For suburban locations, asking levels for COV amounts have come down, said HSR Property Group's executive director, Mr Eric Cheng.
'I would say that $15,000 to $25,000 is common for non-prime districts. Previously, people were asking for $30,000 to $40,000,' he said.
'The resale index rose because of higher valuations.'
Valuations are made based on historical data.
Going forward, HDB resale prices look set to rise, but likely by a smaller margin.
In its second-quarter data release in end-July, HDB said that it planned to offer about 3,900 new flats under the Build-to-Order (BTO) system over the next six months. These will be in towns such as Punggol, Sengkang and Bukit Panjang.
For the whole of this year, HDB has a planned supply of 8,400 new BTO flats, up from the 6,000 flats offered last year and just 2,400 BTO flats in 2006. These BTO flats are the main supply of new flats.
With more new flats coming on the market, some demand will be taken away from the resale market, said Mr Lim.
He expects an overall price rise of 10 to 15 per cent, including an 8.2 per cent rise in resale prices in the first half of this year.
Mr Cheng believes the rise in the next 12 months will not be more than 5 per cent.
Last year, HDB resale prices rose by 17.5 per cent.
HDB prices will support the private mass market sector, but selectively. A lot still depends on the general economic outlook, said Knight Frank's director of research and consultancy, Mr Nicholas Mak.
When the economic outlook is less buoyant, HDB upgraders are likely to stay put rather than move to another estate to upgrade, he said.
Typically, demand for a private suburban launch comes primarily from the same housing estate. Unless the market is generally buoyant, sales will start to slow once this pool of buyers runs out, he added.
Big money
Despite the slowing economy, the HDB resale market still saw high-priced transactions in the last few months.
Marine Parade
3-room: $382,000 (July)
4-room: $425,000 (July)
5-room: $700,000 (May)
Queenstown
3-room: $365,000 (June)
4-room: $606,000 (July)
5-room: $750,000 (June)
Bukit Merah
3-room: $395,000 (Aug)
4-room: $590,000 (Aug)
5-room: $690,000 (June)
Deals of more than $700K are still being done, with demand fuelled by PRs and new families
While sentiment in the private homes market remains gloomy, the market for Housing Board resale flats offers another story.
Deals of $700,000 and above are still being done this year, after 'record deals' of more than $700,000 first surfaced during last year's boom, though these are few and far between.
The good news for sellers is that prices continue to rise, pushing up valuations.
Volume is seen remaining healthy as home seekers continue to check out resale flats, largely oblivious to the credit crisis consuming the world, market watchers said.
Demand for HDB resale flats comes mostly from newly formed families and new permanent residents (PRs), they said.
Mr Leong Sze Hian, president of the Society of Financial Service Professionals, thinks that HDB prices are still rising because there is not enough supply to meet demand.
'For example, last year, there were about 78,000 new citizens and PRs. So they may be buying HDB flats which they may not have been eligible to buy previously,' he said.
HDB flat seekers also include those who are priced out of the private market given that mass market prices there remain relatively strong.
But there is a limit to the gains for an HDB seller. Already, HDB prices are considered high, said Mr Leong.
Also, agents say that buyers are showing more resistance to sizeable cash-over-valuation (COV) amounts. The COV is the cash sum that is paid over and above the valuation of a flat.
It cannot be paid from a home loan or with Central Provident Fund monies.
Generally, once you cross the barrier of $600,000, there will be strong resistance, said the assistant vice-president of ERA Asia Pacific, Mr Eugene Lim.
High-priced transactions have been registered in a few estates such as Marine Parade, Queenstown and Bukit Merah. For instance, a $750,000 deal for a 10-year-old, high-floor 124 sq m unit in Holland Close in Oueenstown was recorded in June.
Once a high-priced deal is done, sellers in the area will raise their asking prices. But these may not be realistic, said Mr Lim.
Increasingly, potential buyers are feeling the pinch of rising costs and negotiating harder for a smaller COV amount, particularly for non-prime flats, he said.
'People are more cost-conscious now.'
For suburban locations, asking levels for COV amounts have come down, said HSR Property Group's executive director, Mr Eric Cheng.
'I would say that $15,000 to $25,000 is common for non-prime districts. Previously, people were asking for $30,000 to $40,000,' he said.
'The resale index rose because of higher valuations.'
Valuations are made based on historical data.
Going forward, HDB resale prices look set to rise, but likely by a smaller margin.
In its second-quarter data release in end-July, HDB said that it planned to offer about 3,900 new flats under the Build-to-Order (BTO) system over the next six months. These will be in towns such as Punggol, Sengkang and Bukit Panjang.
For the whole of this year, HDB has a planned supply of 8,400 new BTO flats, up from the 6,000 flats offered last year and just 2,400 BTO flats in 2006. These BTO flats are the main supply of new flats.
With more new flats coming on the market, some demand will be taken away from the resale market, said Mr Lim.
He expects an overall price rise of 10 to 15 per cent, including an 8.2 per cent rise in resale prices in the first half of this year.
Mr Cheng believes the rise in the next 12 months will not be more than 5 per cent.
Last year, HDB resale prices rose by 17.5 per cent.
HDB prices will support the private mass market sector, but selectively. A lot still depends on the general economic outlook, said Knight Frank's director of research and consultancy, Mr Nicholas Mak.
When the economic outlook is less buoyant, HDB upgraders are likely to stay put rather than move to another estate to upgrade, he said.
Typically, demand for a private suburban launch comes primarily from the same housing estate. Unless the market is generally buoyant, sales will start to slow once this pool of buyers runs out, he added.
Big money
Despite the slowing economy, the HDB resale market still saw high-priced transactions in the last few months.
Marine Parade
3-room: $382,000 (July)
4-room: $425,000 (July)
5-room: $700,000 (May)
Queenstown
3-room: $365,000 (June)
4-room: $606,000 (July)
5-room: $750,000 (June)
Bukit Merah
3-room: $395,000 (Aug)
4-room: $590,000 (Aug)
5-room: $690,000 (June)
Finding The Best Way To Pay Off A Home Loan
Source : The Sunday Times, August 24, 2008
Choosing a suitable home loan package can be daunting with the myriad of choices available to a home owner. Invest looks at the current refinancing trend and highlights two new loan packages
When the going gets tough, the tough go shopping. And that is what home owners have been doing - shopping for suitable and the lowest home loan rates.
The cheap cost of borrowing, a result of interest rates heading south, has led to more home owners opting to refinance their mortgages to enjoy savings.
Fuelling this trend are financial institutions which are jumping on the bandwagon to launch attractive and creative loan packages to capture a bigger slice of the lucrative mortgage market.
Refinancing your home loans
Let's take a look at the refinancing trend so far this year. Mortgage consultancy portal www.HousingLoanSG.com has seen a surge of at least 50 per cent in refinancing activities.
At HSBC, the volume of refinancing applications has grown more than 50 per cent in the last three months.
'The reason for this trend is the big drop in the Singapore Interbank Offered Rate
(Sibor) in the last 18 months from as high as 3.5 per cent to about 1.2 per cent currently,' said Mr Dennis Ng, spokesman for www.HousingLoanSG.com.
Sibor is the benchmark rate used by banks to determine mortgage rates for home loans. It is the cost at which banks borrow funds from one another.
The drop in Sibor means that those who took up a housing loan one to two years ago are likely to enjoy significant interest savings if they refinance now.
Mr Ng worked out that refinancing an outstanding loan amount of $480,000 to a lower interest rate of 1.95 per cent, down from the current rate of 3.5 per cent, will result in interest savings of $21,710 over three years. This assumes a 25-year loan tenure.
Even those who are subject to lock-in and clawback penalties may save money by refinancing, said Ms Annie Lim, managing director of mortgage consultancy Global Creatif Financial.
Furthermore, financial institutions which are eager for your business may offer to pay your legal fees of up to $2,000 for you to switch banks.
Refinancing has represented 75 per cent of all mortgages at Global Creatif Financial so far this year.
Still, Ms Helen Neo, Maybank Singapore's head of consumer banking, cautions that refinancing should be considered only when there are no plans to sell the property in the short term so as to avoid paperwork and potential costs.
Pegged rates versus fixed rates
With Sibor falling steadily, it is not surprising that many customers are opting for new Sibor-linked packages or refinancing from a fixed-rate package to a Sibor one.
Still, some customers are confused when faced with a choice of a three-month or a 12-month Sibor-pegged home loan package.
Mr Ng noted that if one chooses the latter, it is as good as fixing the interest rate for a year.
This means the customer enjoys greater certainty or lower volatility with a 12-month Sibor package than a three-month package.
However, as the 12-month Sibor rate is typically 0.5 per cent higher than the three-month Sibor, he will end up paying a higher interest.
Ms Lim believes that the three-month Sibor will appeal to those who are comfortable with the current interest-rate environment and who expect rates to stay depressed.
Looking ahead, Mr Bryan Ong of mortgage consultancy bcgroup.com.sg thinks that rates will remain flat for the next 18 months. That is why he feels that the three-month Sibor is 'the way to go'.
New home loan packages
With depressed interest rates and an influx of new and creative home loan packages, home owners are spoilt for choice.
However, opting for the cheapest rates may not always be the best for every home owner, as different people have different needs.
# MortgageOne Sibor
For instance, Standard Chartered Bank's (Stanchart) newly launched MortgageOne Sibor will appeal to those with excess cash.
This is because it comes with an offset feature so that customers can use the interest earned on their deposits to reduce the interest payable on their home loans.
MortgageOne Sibor loans are priced at 0.8 per cent per annum above the three-month Sibor for the first three years.
Customers can enjoy the same interest rate as their mortgage loan on two-thirds of the deposits linked to their loans, subject to a maximum of their outstanding loan amount. The remaining deposits will enjoy an annual rate of 0.5 per cent.
At the same time, they have the flexibility to withdraw their deposits at any time.
'This is good for home owners who have surplus cash. They could be waiting for investment opportunities and want to remain liquid. In the meantime, they can use their cash to reduce their loans,' said Mr Ong.
Interest-only loans
Some mortgage packages like the DBS Bank's new interest-only mortgage product launched early this month appear attractive, but experts cautioned that they are not suitable for everyone.
The product allows customers to pay only the interest for the entire duration of their home loan.
The principal amount is payable in one lump sum only at the end of the loan tenure.
This means that the money that would otherwise have formed the principal component of the loan instalments would be available to the customer for investing.
Ms Lim worked out that based on a rate of 3 per cent, a $1 million loan with a 25-year tenure would have a monthly instalment of $4,486.
Of this, $2,083 is paid towards the principal and would thus be available to the customer to meet other needs if he opts for interest-only servicing.
But here's the potential pitfall. If the customer invests wrongly or, worse still, has no discipline to save and invest, the amount would be frittered away and he still has a loan to pay.
Ms Lim said that she would go for an interest-only loan only under the following situations:
# If she has an intention to buy multiple properties and would like to pay only the loan interest and keep every cent possible;
# If she has other alternatives to invest at higher returns; or
# If her cashflow is very tight.
Like her, most experts said that they would prefer the conventional packages where both principal and interest are paid up regularly and doing so helps them pay their home loans in a disciplined manner.
Said Mr Ng: 'The customer might end up in financial trouble in the event that property prices correct by say over 20 per cent and plunge him into negative equity.
'In such a situation, he might not be able to sell his property at a price where he can pay up the loan.'
He cautioned home owners who opt for such a product that they would end up paying more interest in the long run compared to conventional loan packages where both the interest and principal components are paid up regularly.
However, Mr Ng added that he might consider such a loan package if he is buying an investment property.
DBS' interest-only mortgage charges 1.5 per cent on top of either the three-month or 12-month Sibor.
Other banks like Stanchart allow customers to pay only interest on a mortgage for up to three years and such products are offered on a case-by-case basis.
To ensure that customers are not overstretched, DBS imposes certain restrictions such as allowing home owners to borrow only up to 70 per cent of the property purchase price.
Finally, Stanchart's general manager of lending, Mr Dennis Khoo, advises home owners to consider the following when choosing a mortgage package:
# Is the property for your own stay or for investment?
# What are your long-term financial goals?
# Do you prefer security and protection or transparency with some volatility?
# Do you have any spare cash that you can use to reduce your interest payments and shorten your loan tenure?
A word of caution
'The customer might end up in financial trouble in the event that property prices correct by say over 20 per cent and plunge him into negative equity. In such a situation, he might not be able to sell his property at a price where he can pay up the loan.'
MR DENNIS NG, spokesman for www.HousingLoanSG.com, on the dangers of taking up an interest-only loan
Choosing a suitable home loan package can be daunting with the myriad of choices available to a home owner. Invest looks at the current refinancing trend and highlights two new loan packages
When the going gets tough, the tough go shopping. And that is what home owners have been doing - shopping for suitable and the lowest home loan rates.
The cheap cost of borrowing, a result of interest rates heading south, has led to more home owners opting to refinance their mortgages to enjoy savings.
Fuelling this trend are financial institutions which are jumping on the bandwagon to launch attractive and creative loan packages to capture a bigger slice of the lucrative mortgage market.
Refinancing your home loans
Let's take a look at the refinancing trend so far this year. Mortgage consultancy portal www.HousingLoanSG.com has seen a surge of at least 50 per cent in refinancing activities.
At HSBC, the volume of refinancing applications has grown more than 50 per cent in the last three months.
'The reason for this trend is the big drop in the Singapore Interbank Offered Rate
(Sibor) in the last 18 months from as high as 3.5 per cent to about 1.2 per cent currently,' said Mr Dennis Ng, spokesman for www.HousingLoanSG.com.
Sibor is the benchmark rate used by banks to determine mortgage rates for home loans. It is the cost at which banks borrow funds from one another.
The drop in Sibor means that those who took up a housing loan one to two years ago are likely to enjoy significant interest savings if they refinance now.
Mr Ng worked out that refinancing an outstanding loan amount of $480,000 to a lower interest rate of 1.95 per cent, down from the current rate of 3.5 per cent, will result in interest savings of $21,710 over three years. This assumes a 25-year loan tenure.
Even those who are subject to lock-in and clawback penalties may save money by refinancing, said Ms Annie Lim, managing director of mortgage consultancy Global Creatif Financial.
Furthermore, financial institutions which are eager for your business may offer to pay your legal fees of up to $2,000 for you to switch banks.
Refinancing has represented 75 per cent of all mortgages at Global Creatif Financial so far this year.
Still, Ms Helen Neo, Maybank Singapore's head of consumer banking, cautions that refinancing should be considered only when there are no plans to sell the property in the short term so as to avoid paperwork and potential costs.
Pegged rates versus fixed rates
With Sibor falling steadily, it is not surprising that many customers are opting for new Sibor-linked packages or refinancing from a fixed-rate package to a Sibor one.
Still, some customers are confused when faced with a choice of a three-month or a 12-month Sibor-pegged home loan package.
Mr Ng noted that if one chooses the latter, it is as good as fixing the interest rate for a year.
This means the customer enjoys greater certainty or lower volatility with a 12-month Sibor package than a three-month package.
However, as the 12-month Sibor rate is typically 0.5 per cent higher than the three-month Sibor, he will end up paying a higher interest.
Ms Lim believes that the three-month Sibor will appeal to those who are comfortable with the current interest-rate environment and who expect rates to stay depressed.
Looking ahead, Mr Bryan Ong of mortgage consultancy bcgroup.com.sg thinks that rates will remain flat for the next 18 months. That is why he feels that the three-month Sibor is 'the way to go'.
New home loan packages
With depressed interest rates and an influx of new and creative home loan packages, home owners are spoilt for choice.
However, opting for the cheapest rates may not always be the best for every home owner, as different people have different needs.
# MortgageOne Sibor
For instance, Standard Chartered Bank's (Stanchart) newly launched MortgageOne Sibor will appeal to those with excess cash.
This is because it comes with an offset feature so that customers can use the interest earned on their deposits to reduce the interest payable on their home loans.
MortgageOne Sibor loans are priced at 0.8 per cent per annum above the three-month Sibor for the first three years.
Customers can enjoy the same interest rate as their mortgage loan on two-thirds of the deposits linked to their loans, subject to a maximum of their outstanding loan amount. The remaining deposits will enjoy an annual rate of 0.5 per cent.
At the same time, they have the flexibility to withdraw their deposits at any time.
'This is good for home owners who have surplus cash. They could be waiting for investment opportunities and want to remain liquid. In the meantime, they can use their cash to reduce their loans,' said Mr Ong.
Interest-only loans
Some mortgage packages like the DBS Bank's new interest-only mortgage product launched early this month appear attractive, but experts cautioned that they are not suitable for everyone.
The product allows customers to pay only the interest for the entire duration of their home loan.
The principal amount is payable in one lump sum only at the end of the loan tenure.
This means that the money that would otherwise have formed the principal component of the loan instalments would be available to the customer for investing.
Ms Lim worked out that based on a rate of 3 per cent, a $1 million loan with a 25-year tenure would have a monthly instalment of $4,486.
Of this, $2,083 is paid towards the principal and would thus be available to the customer to meet other needs if he opts for interest-only servicing.
But here's the potential pitfall. If the customer invests wrongly or, worse still, has no discipline to save and invest, the amount would be frittered away and he still has a loan to pay.
Ms Lim said that she would go for an interest-only loan only under the following situations:
# If she has an intention to buy multiple properties and would like to pay only the loan interest and keep every cent possible;
# If she has other alternatives to invest at higher returns; or
# If her cashflow is very tight.
Like her, most experts said that they would prefer the conventional packages where both principal and interest are paid up regularly and doing so helps them pay their home loans in a disciplined manner.
Said Mr Ng: 'The customer might end up in financial trouble in the event that property prices correct by say over 20 per cent and plunge him into negative equity.
'In such a situation, he might not be able to sell his property at a price where he can pay up the loan.'
He cautioned home owners who opt for such a product that they would end up paying more interest in the long run compared to conventional loan packages where both the interest and principal components are paid up regularly.
However, Mr Ng added that he might consider such a loan package if he is buying an investment property.
DBS' interest-only mortgage charges 1.5 per cent on top of either the three-month or 12-month Sibor.
Other banks like Stanchart allow customers to pay only interest on a mortgage for up to three years and such products are offered on a case-by-case basis.
To ensure that customers are not overstretched, DBS imposes certain restrictions such as allowing home owners to borrow only up to 70 per cent of the property purchase price.
Finally, Stanchart's general manager of lending, Mr Dennis Khoo, advises home owners to consider the following when choosing a mortgage package:
# Is the property for your own stay or for investment?
# What are your long-term financial goals?
# Do you prefer security and protection or transparency with some volatility?
# Do you have any spare cash that you can use to reduce your interest payments and shorten your loan tenure?
A word of caution
'The customer might end up in financial trouble in the event that property prices correct by say over 20 per cent and plunge him into negative equity. In such a situation, he might not be able to sell his property at a price where he can pay up the loan.'
MR DENNIS NG, spokesman for www.HousingLoanSG.com, on the dangers of taking up an interest-only loan