Bank loans looking more enticing
Several banks are enjoying decent HDB home loan sales, reports SIOW LI SEN
THE recent property measures have not dented HDB flat buyers' enthusiasm for taking on bank loans because the historic low interest rates have made them cheaper than borrowing from the government. In addition, banks sweeten their deals with cash payouts which can run into the thousands. For example, interest savings from a bank loan from HSBC can be as high as almost 50 per cent over an initial two- year period versus taking on the HDB concessionary loan based on a $100,000 loan amount.
Under HSBC's loyalty package, the interest payable for the two years comes to $2,623, a savings of 47 per cent against $5,007 payable if one took the HDB concessionary rate. On a loan from Maybank which is offering special deals as part of its 50th anniversary, for every $100,000 loan, interest paid over three years would come to $4,470, against paying $7,468 on the HDB concessionary loan. This represents a hefty 40 per cent savings or $2,998, according to Maybank Singapore. Maybank also offers a three-year fixed rate package and savings here is 36 per cent when compared with a HDB loan.
The HDB concessionary interest rate is currently at 2.6 per cent. It is pegged at 0.1 per cent point above the CPF Ordinary Account Interest Rate which is subject to a minimum of 2.5 per cent.
If interest rates slide further, the HDB concessionary rate remains at 2.6 per cent but if interest rates rally sharply, the HDB concessionary rate could be revised upwards.
Here though is the major factor why some refuse to be tempted by the banks' current lower rates. The view is that the government will not raise its HDB concessionary rate without taking other factors - such as the public good - into consideration, while the banks will revise them at the drop of a hat, or rather any time interest rates move.
But for the present, it's no wonder that several banks continue to enjoy decent HDB home loan sales in the three weeks since the government unleashed restrictions to stop the property market from running away.
OCBC Bank and United Overseas Bank though said they are seeing a slowdown in HDB loan applications. Still, with the current record low interest rates looking to slide further, those who are buying, they are likely to look for bank loans rather than borrow from the HDB, said bankers.
Those who worry about interest rate movements can lock in their rates for as long as five years, an option which is gaining favour, said some bankers.
Jeremy Soo, DBS Bank managing director and head of consumer banking group (Singapore), said most HDB home buyers want certainty in their repayments as they are purchasing for long-term occupation.
'For many, this is their first big financial commitment. Thus, the fixed rate packages remain most popular with our customers who continue to see value in locking in the fixed rates in the current, low interest rate environment,' said Mr Soo.
With the new five-year minimum occupation period (MOP), DBS is seeing an increased interest in its five-year fixed rate (at 2.25 per cent) which is lower than the concessionary rates charged by HDB (of 2.6 per cent).
Under DBS' five-year fixed rate package, for a $250,000 loan over a 25-year period, the monthly instalment is about $44 lower or about 4 per cent when compared to the HDB concessionary package. Over the five- year fixed rate period, the savings amount to $2,600. This is on the assumption that the concessionary rate stays at 2.6 per cent.
Citibank, HSBC, Maybank, and Standard Chartered say since Aug 31 it's pretty much business as usual for sales of HDB home loans. 'As of now, we have not seen a significant drop in applications for loans,' said Vibha Coburn, Citibank Singapore business director for secured finance. Helen Neo, Maybank Singapore consumer banking head, said, 'So far, it is business as usual for HDB loans with minimal negative impact.'
Dennis Khoo, Stanchart general manager retail banking products, Singapore, and Malaysia, said the bank does not expect a significant change in the behaviour of its customers. 'Currently, there is a spike in terms of enquires about the new property measures - some have provided feedback that they are thinking of putting their purchases on hold in anticipation of a drop in property prices,' said Mr Khoo.
'However, there are also some customers that will continue to take up loans with us as they are buying properties for homeownership,' said Mr Khoo.
But OCBC Bank said it is seeing more caution among buyers. 'Based on our observations, the market has slowed down as buyers become more cautious and are taking time to understand the implications of the new measures on them,' said Phang Lah Hwa, OCBC Bank head of consumer secured lending.
Bankers said the majority of HDB loans are for the bigger four- and five-room flats and many borrowers are young couples. Borrowers are buyers of 'mainly four rooms and above, and are young professionals', said Ms Neo.
As for their borrowers' views on the direction of interest rates, banks report a mixed picture. Maybank and StanChart said there is a balanced take-up between the floating rate and fixed rate loans.
The preference is still for the conventional fixed rate packages, although there is a growing pool of borrowers who hold specific views of the interest rate market and therefore opt for variable packages, said Ms Phang. HSBC and Citi see more clients who prefer variable rate loans.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
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