Home loan rates not falling yet, but banks offering more flexible deals

Banks get creative with loan offerings amid wait for compounded Sora rates to fall

- Chor Khieng Yuit

The big cut in United States interest rates last week will have little short-term impact on home loans here.

Local banks said the 50-basis-point reduction by the US Federal Reserve had been expected and was already reflected in fixed-rate mortgage packages.

Floating-rate mortgages here are pegged to the Singapore Overnight Rate Average (Sora), which is the rate banks charge when they lend to one another in the interbank market.

Banks typically use a compounded average of the daily Sora readings over the previous month or three months to set what is called the one-month compounded Sora and the three-month compounded Sora.

These are then used to price floating-rate mortgages, with the banks adding a bit - called the spread - for their own bottom line. This averaging process means it will take a while for the compounded Sora rates to come down, even as daily rates fall in response to the drop in US rates.

Ms Chelsea Ling, head of home financing at DBS Consumer Banking Group (Singapore), said "borrowers with floating-rate mortgages will likely see a gradual decrease in their monthly payments over the coming months".

She added that the banks have already factored in potential rate cuts for fixed-rate packages so borrowers are "unlikely to see significant changes" to what is now on offer.

Mr Wayne Quek, director of mortgage consultancy Home Loan Whiz, told The Straits Times that fixed rates from the three local banks currently range around 2.55 per cent to 2.75 per cent for loans above $1.5 million.

Fixed and floating rates are on hold now, but will fall to around 1.8 per cent to 2 per cent within the next 12 months, said Mr David Baey, chief executive of Mortgage Master, adding: "It will not be a drastic drop until end of first quarter next year."