Interest rates likely to rise

[Musicwhiz]

Former forumer Mr. Dennis Ng weighs in his views on interest rates!

Dec 9, 2010
Interest rates likely to rise

THOSE record-low interest rates home buyers have been enjoying are on the way out, according to economists.

They expect rates to inch up next year, largely because the United States is also forecast to lift its rates.

The three-month US-dollar Singapore Interbank Offered Rate (Sibor) is forecast to rise 0.2 percentage point to 0.5 per cent next year, according to a survey of 22 economists by the Monetary Authority of Singapore.

Similarly, the three-month Singdollar interbank rate is projected to climb to 0.7 per cent from 0.5 per cent now.

Economists have forecast rate rises because they expect the US to tighten monetary conditions and raise interest rates towards the second half of next year.

Barclays Capital economist Leong Wai Ho said rates in Singapore follow those in the US very closely.

'There is an upward bias of interest rates in the US, and although I don't expect the rates there to jump to 3.5 per cent any time soon, rates are on an upward trend,' he said.

Mr Dennis Ng, founder of mortgage consultancy portal HousingLoanSG.com, does not think that the minuscule increase will have much of an impact on people taking up mortgages linked to the Sibor rates.

Some banks peg mortgages to the Sibor and add a fixed premium on top of it.

'Right now, most such mortgage loan rates are 1.2 per cent. It is still at record lows and I don't think people will be severely affected until rates hit 3 per cent or more,' he said.

A 3 per cent rate on a $500,000 loan would mean a monthly repayment of about $2,300, compared to only $1,900 if the rate is 1.2 per cent.

[pianist]

would a rise in interest rate realli dampens the property market in sg? maybe unlikely

[Musicwhiz]

would a rise in interest rate realli dampens the property market in sg? maybe unlikely

A rise in interest rates would make bank deposits more attractive, and equities less attractive; as the difference in returns between dividend yields and interest on bank deposits narrow.

For property, as interest rates rise, banks will issue loans which are more expensive, and people who refinance their existing loans when they expire can be expected to pay more, hence this will increase their debt-servicing ratio. The dampener effect will come when people realize they cannot afford to borrow as much as they used to because of the higher rates, and thus hold back on buying.