Bankers caution home buyers on impact of higher interest rates

Banks in Singapore have been raising interest rates for home loan packages since the start of 2018.

Bankers have warned buyers, especially those eyeing investment properties, to assess the impact of higher interest rates before they make a decision, reported the Business Times.

This comes as banks have been raising interest rates for fixed and floating home loan packages by 10 to 30 basis points since the start of 2018.

DBS Bank, for instance, now charges 1.95 percent a year for each of the three years for its three-year fixed rate package, while UOB charges 2.05 percent for each of the three years for its three-year fixed rate package.

OCBC Bank has increased its two-year fixed rate package to 1.85 percent a year for each of the two years, while its third-year rate now stands at 1.90 percent, which is made up of its home rate – presently at one percent – plus 0.90 percent.

“Rising interest rates may curb the rise in property prices here, but it may not be enough to hurt property prices too badly on its own – especially if there are other positive drivers like a strong economy, a healthy job market and good wage growth,” explained Vasu Menon, vice-president and senior investment strategist at OCBC Bank.

But with the weak rental market, Menon noted that a rising interest rate may raise the burden of servicing mortgages while reducing the appeal of investment properties.

“The ability to service the mortgage on an investment property depends on how easily the property can be rented out and the state of the rental market, which seems weak at the moment.”

As such, unless an owner easily rents out his property, he may either end up slashing rentals to secure a tenant or own a property that remains vacant for a long period of time, added Menon.

“A combination of rising interest rates, lower rentals and prospects of a longer vacancy period, raises the risk of loan defaults among individuals that have investment properties.”

 

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