SINGAPORE – Home loan rates here are expected to head lower over the coming 18 months, despite concerns that policies imposed by incoming US president Donald Trump could reignite inflation.
Inflation has been falling in the United States but an uptick after Trump returns to the White House could put the Federal Reserve on course for fewer rate cuts in 2025.
Higher US rates mean rates here will also stay elevated. However, they will still decline, but at a slower pace than initially expected, said Mr David Baey, chief executive of Mortgage Master.
Trump’s pledge to cut taxes and slap tariffs on imports during his election campaign could usher in a period of inflation in the US and the global economy if the policies are enacted.
With Republicans winning control of both Houses of Congress, he will find it even easier to push through his agenda.
Mr Winson Phoon, head of fixed income research at Maybank Securities, said the market is still pricing in a “good amount” of interest rate cuts in the next 12 to 18 months, but these will be pushed back if inflation expectations rise.
The US Fed said after its Nov 8 meeting that the US elections will have no “near-term” impact on its policy decisions.
The US central bank cut interest rates by a quarter of a percentage point at that meeting, after shaving off half a percentage point in September.
Markets are looking for another quarter of a percentage point cut on Dec 18, the last meeting for 2024, to take US rates to between 4.25 per cent and 4.5 per cent.
Beyond that, the outlook for rates will be dependent on economic data and the Trump administration’s policies, Mr Phoon said.
“We are mindful of the risk of inflation reacceleration, which could lead to additional upward repricing in the terminal Fed funds rate,” he noted.
The terminal Fed funds rate, now at 2.9 per cent, is the long-term target rate at which prices are stable and there is full employment.
Singapore’s monetary policy is centred on the exchange rate, and interest rates here are largely determined by the global rate trajectory and foreign exchange market expectations of the Singdollar.
While higher rates in the US could lead to tighter monetary conditions and push up rates here, Mortgage Master’s Mr Baey thinks fixed home loan rates will drop below 2 per cent within 12 to 18 months.
He added that the Singapore Overnight Rate Average (Sora), which is the benchmark used to price floating rate loans, will drop by 1.5 percentage points to 2 per cent by the end of 2025.
Banks typically use a compounded average of the daily Sora readings over the previous month or three months to set what is called the one-month compounded and the three-month compounded Sora.
These Sora rates are then used to price floating-rate mortgages, with the banks adding a bit – called the spread – for their own bottom line.
Mr Baey had predicted in September that fixed and floating mortgage rates will fall to around 1.8 per cent to 2 per cent within the next 12 months.
Rates will take a longer time to fall because Trump’s import tariffs may spark inflation and push up rates while also slowing global economic growth, noted Mr Baey on Nov 8.
Central banks will have to keep interest rates low to support their economies, he added.
Mr Louis Koay, senior financial services director at Phillip Securities, expects lower home loan rates, but noted that the declines might be “smaller than anticipated”.
Deputy Prime Minister and Trade and Industry Minister Gan Kim Yong, who is also chairman of the Monetary Authority of Singapore, said on Nov 11 that domestic interest rates are expected to ease, along with global interest rates.
DPM Gan was responding to a parliamentary question on the impact of the US Fed rate cut on home mortgages here.
His written response noted: “Financial markets currently expect the three-month compounded Sora to decline from 3.3 per cent to about 2.5 per cent at the end of 2025.”
Sora fell from 3.4 per cent ahead of the Fed’s decision to cut rates by half a percentage point in September, to 2.9 per cent, while the three-month compounded Sora is at 3.29 per cent as at Nov 15.
Meanwhile, fixed rate packages fell from the peak of about 4.5 per cent at the end of 2022, to about 3 per cent in the first half of 2024, the DPM noted.
The three local banks are staying the course on home loan rates for now.
DBS chief executive Piyush Gupta said the bank is not leading the market to cut mortgage rates, adding: “Some of the mortgage pricing is not entirely sensible. If you compare funding costs today, fixed deposits are higher than mortgage pricing. That is kind of illogical.”
OCBC chief executive Helen Wong said the bank will not cut mortgage rates just because a competitor does so. “It depends on how our pipeline is like, on how our relationship with the customer is like,” she said.
UOB chief financial officer Lee Wai Fai said the bank has to be competitive in the mortgage space, adding that “if the market is aggressive, then technically we do not mind losing money but hopefully make it (back) later”.
Any fall in home loan rates will be welcome news for existing mortgage borrowers.
The latest Central Provident Fund (CPF) trends report showed that 80 per cent of home owners aged 50 and below who used CPF to pay their loans had sufficient savings for at least six months of instalments.
However, 54 per cent of those over 60 – they number 22,140 – only have CPF savings for less than six months of payments.
HDB home owners over 65 could monetise their HDB flat through the Lease Buyback Scheme, which involves selling part of their flat’s lease to the HDB.
The proceeds from selling the flat’s lease (less any outstanding mortgage loans) will be used to top up their CPF Retirement Account (RA). Any excess cash above the top-up limit will be paid out to the home owner.
This gives home owners a stream of income in their retirement years and allows them to continue to live in their flats.
Alternatively, they can right-size their property by moving to a three-room or smaller flat. The net proceeds from selling their current home will be used to top up their RA. They also get a cash bonus of up to $30,000.
In 2023, 3,960 people tapped the Lease Buyback Scheme and Silver Housing Bonus Scheme, up 38 per cent from 2,860 in 2022.
They received $656 million in total, up 53 per cent from $429 million in 2022.
“Source:[Fixed home loan rates to fall below 2% over the next year and a half, says mortgage broker] © Singapore Press Holdings Limited. Permission required for reproduction”
