By Romesh Navaratnarajah: It appears that banks in Singapore can no longer subsidise legal and valuation fees for a home loan package, meaning that consumers will have to pay from their own pocket, or they could receive a lower loan amount after costs are deducted.
The New Paper had earlier reported that the practice of subsidising such expenses had been occurring until the Monetary Authority of Singapore (MAS) sent a reminder to banks, advising them to stop the subsidies.
However, a spokesman from MAS clarified that its rules do not prevent banks from offering such subsidies.
Banks can still offer such subsidies, but they must effectively foot the bill and they should not package such fees as part of the property's purchase price, because "a discount, rebate or any other benefit offered to a borrower may effectively reduce the true purchase price of the residential property".
"In this case, the financial institution is required to deduct the amount from the purchase price and determine the housing loan it can grant on the lower price. This rule has been in effect since 1 September 2002."
Despite the clarification, three major banks in Singapore, including OCBC and DBS, will remove the subsidy. As for UOB, it plans to stop the subsidy starting tomorrow.
A spokesman from DBS said: "We have withdrawn the subsidies as part of the bank's regular review of our service offerings to respond to market developments and customer needs."
And while banks are not compelled to remove these subsidies, they will stop the practice as it will allow them to save resources. As a result, lenders may pass the cost-savings back to borrowers in the form of lower interest rates, noted an industry expert.