US Fed hike to affect Singapore housing loans

Local housing loan rates are expected to rise this year, say experts.

Analysts expect the three-month Singapore interbank offered rate (Sibor), to which most housing loans are pegged, to increase to between 1.45 percent and 1.85 percent by the end of the year, reported TODAYonline.

This comes as the US Federal Reserve earlier increased its rates by 25 basis points to a range of 0.75 percent to one percent. The Fed predicts two more hikes for this year.

The Sibor hovered at 0.942 percent yesterday (16 March), from 0.940 percent during the previous week, while the three-month Swap offer rate (Sor), which is a benchmark for commercial loans, stood at 0.907 percent, up from 0.890 percent previously.

“The contributing factor to the rise in Sibor and Sor for this year is the rise in Libor (London interbank offered rate), which is due to the expectations of two more rate hikes this year,” said Francis Tan, an economist at UOB. Libor is a benchmark rate that some of the leading banks in the world charge one another for short-term loans.

With this, Tan believes the increase in Sibor may cause a strain to borrowers. “The cost side for consumers is going up, as they feel the impact of the rise in interest rates for their mortgages, especially now with the rise in (the) resident jobless rate and weak consumer sentiment on economic growth.”

After hovering at about 2.8 percent for four years, the annual average unemployment rate rose three percent in 2016, revealed the Ministry of Manpower’s 2016 labour market report.

“It is inevitable for local rates to move up,” said CIMB economist Song Seng Wun. “The three-month Sibor and Sor are likely to return to the rates we saw early last year.”

Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg