Super cheap home loans have just been unveiled by two foreign banks in Singapore in an attempt to have a larger share in the booming mortgage market.
Market observers, however, say that it is still too early to predict whether an all-out mortgage rates war is looming, although the recent rates are getting more and more attractive to home hunters.
One major factor that makes super-cheap mortgages possible is that the interbank rate, which affects consumer deposit and loan rates, is projected to stay at rock-bottom levels until late next year.
The three-month interbank rate offered in Singapore hovers at 0.68 percent, which is close to the 0.56 percent rate last June 2003.
HSBC has just unveiled a mortgage package with a Sibor plus 1 interest rate for the entire duration of the loan. The usual interest rate given by the bank is Sibor plus 1.3 percent for the first year, 1.2 percent for the second, and 1.1 percent for all the succeeding years.
According to the bank, customers can save around seven percent for a $600,000 loan over 20 years. This package will be available until September 30 for both finished and unfinished homes with a $300,000 minimum loan size.
There is no lock-in period and it is available for all existing HSBC customers. Non-customers can avail of the package by parking a minimum of $50,000 with the bank.
The State Bank of India also offers a new cheap home loan package. It offers a super low Sibor plus 0.6 percent in the first year, 0.8 percent in the next, and 1 percent in the third. However, it is available for completed buildings only.
Sibor, at present, is very low since it tries to follow the near zero target rate set by the US Federal Reserve.
Another reason is that the Singaporean government aims to maintain plenty of liquidity in its system–due to the global economic recession.
Some lenders have slashed the spreads charged on Sibor-pegged loans as a means of getting a bigger share of home loans. This is contrary to the tightening of lending criteria by banks just a few months ago.
Market observers say that the jaw-dropping rate offered by SBI Singapore is not likely to affect market rates. The bank, after all, is much smaller than three of Singapore’ main banks: United Overseas Bank, OCBC, and DBS Bank.
Mr. Seah Boon Ching, the head of SBI Singapore’s consumer banking, says that they are not after the market shares yet; they only want the public to be aware of them.
He also said that their home loan package is a way of passing on to the consumers the funds which they have acquired at a ‘very competitive rate’. Also, it is a way of commemorating Singapore’s National Day.
Cheap deposits are not easily available to foreign banks. If the Sibor remains low, they can get low funding costs and afford giving cheaper loans.