Three reasons Singapore mortgage rates will likely rise further

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Singapore mortgage rates are likely to continue increasing, Nomura said in a note this week, pointing to three factors: stronger interest rate imports, tightening liquidity and rising mortgage demand.

  1. Stronger interest rate imports: Singapore dollar interest rates have been relatively benign, with the local currency rising against the U.S. dollar for the first four months of this year, Nomura noted. But since mid-April, the U.S. dollar began to climb, resulting in stronger interest rates being imported into the city-state it said.
  2. Tighter liquidity: Domestic banking unit loans have been growing “robustly,” even as deposit growth is at its weakest since 2014, resulting in the Singapore dollar loan-to-deposit ratio rising to 107.8 percent in March, its highest since 2015, it said. “With lower supply of Singapore dollar liquidity, the banks will likely price in this into their fast-growing mortgage books,” Nomura said.
  3. Rising mortgage demand: Singapore’s three banks are sticking with guidance for robust mortgage demand, and “rightfully so,” amid “plentiful” property launches in 2017 and 2018, it said. At the same time, homeowners are drawing down their mortgage loan limits granted, increasing the banks’ mortgage exposures, it said. “Refinancing activities should remain robust as homeowners continue to look for opportunities to lock-down lower interest rates as soon as possible,” it said.

Nomura said that in May, UOB and DBS had the most attractive fixed-deposit pegged mortgage packages at 1.65 percent flat for five years, but it added that they were likely to raise those rates by 5-10 basis points and still remain the most competitive.

It noted that of the four banks it tracks which offer fixed mortgage rates — DBS, UOB, Maybank and Citi — most have increased their first two years’ fixed mortgage rates, increased the spread and/or raised the reference rate.

Nomura added that rising Singapore dollar mortgage rates will benefit the net interest margins of the banks with the largest mortgage market share; it tipped buying DBS and UOB.