Banks to make home loan rates more transparent

From Straits Times, June 9, 2007

By Grace Ng

“SINGAPORE banks are promising homeowners a lot more clarity on how the interest rates charged on their home loans change over time.

The banks have responded to growing anger among homeowners with mortgages who say they are confused over rate changes.

Under a new agreement, banks must clearly disclose their ‘board rates’ and key indicators that these rates are pegged to, such as the Central Provident Fund (CPF) or Sibor rate – the interest rate at which banks lend money to each other.

A board rate is a benchmark rate which reflects how much it costs each year to take out a loan. Banks use the benchmark rate to set rates for different years.

For example, Year One of a home loan could be 1 per cent below the board rate, while Year Two’s rate is 0.75 per cent below.

In recent months, complaints have been raised over the fact these board rates can vary between banks, and even between different home loan packages offered by the same bank.

For instance, UOB’s current HomePlus Rate is 4.5 per cent, while DBS has a Home Loan Rate of 4 per cent.

Banks have also been criticised for not being transparent about how these board rates are determined and changed over time.

Now, banks have to provide standard information about their rates so customers can compare them more easily, said Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore (ABS).

More banks now link home loan rates to a publicly available rate, such as the bank’s prime rate, CPF rate or Sibor. This more transparent arrangement means that when these rates go down, home loan rates should also fall.

To further improve transparency, customers have a right to ask banks for a detailed loan repayment schedule for their loan packages. And when rates change, banks must now explain to customers why they were changed and give a revised repayment schedule on request.

The new measures, which kick in next Friday, apply to both new HDB and private property loans that take effect from that date.

The ABS will distribute a consumer guide – Key Questions To Ask Your Bank Before Taking A Home Loan – to potential borrowers from June 15.

This is the first time the banks have collectively set out guidelines to provide more information to help customers choose their home loans. The move comes more than six months after a spate of complaints from homeowners prompted the Monetary Authority of Singapore to urge banks to improve transparency.

The changes are ‘long overdue’, said Mr Seah Seng Choon, Consumers Association of Singapore executive director. Referring to claims that some home loans rates have not followed Sibor down, Mr Seah said: ‘We want to see fair play. The bank should adjust its rates at the same pace, either up or down.’

Banks told The Straits Times yesterday that they welcome the new measures, which added to their individual efforts to lift transparency on rates in recent months.

Maybank now offers a single board rate, while the local banks and Stanchart offer some home loans products that are linked to publicly available rates.

Still, customers are wondering whether the end result of the transparency will be even higher board rates and more expensive loans.

Homeowner Jack Tan, 40, for example, said that when banks launched home loan packages linked to publicly available rates like Sibor, the rates were higher than that of conventional home loans.

graceng@sph.com.sg“

Rising rents, property prices worry US execs here

“More expressing unhappiness with rising costs in new business survey”

By Ng Sook Zhen (June 9, 2007 Straits Times)

“RISING rents and housing costs are becoming more of a worry for senior executives at United States firms here, a new American Chamber of Commerce (AmCham) survey found.

And as local property prices and rentals rise in both residential and office markets, these American executives are increasingly expressing their dissatisfaction.

Amcham’s annual Asean Business Outlook survey found that of the 95 senior executives in Singapore surveyed, 61 per cent were dissatisfied with housing prices, up significantly from 42 per cent last year.

The proportion of those unhappy with office lease prices also rose sharply to 45 per cent, from 29 per cent last year.

The Singapore results were part of a wider survey of AmCham members in the region. Together, AmCham members in the six countries surveyed represent an estimated US$50 billion (S$76.6 billion) of regional investment.

‘Basically, it’s very low levels of satisfaction for housing costs and office rents in Singapore,’ said Mr Dom LaVigne, executive director of AmCham Singapore, at a press conference yesterday.

Residential property prices in prime districts – where these executives are most likely to live – rose 25.4 per cent last year. Islandwide, home rentals also climbed 10 per cent last year.

Changes to US taxation policy have also not helped American expats either, Mr LaVigne said.

Before last year, US citizens did not have to pay tax for a large part of their housing allowances, as any amount above US$11,894 was tax-free.

But new laws introduced last year introduced a cap on the tax-free component, so that any amount exceeding US$42,900 is taxed.

‘The cap on housing allowance tax exemption has not been revised, and it’s not an accurate picture of the true housing costs in Singapore,’ said Mr LaVigne.

As for office rentals, American businesses see the increases as ‘cyclical’, or due to the strong Singapore economy, Mr LaVigne said. ‘I think they are willing to ride it out.’

The survey also found that American executives were worried about the shortage of places at international schools here.

‘We estimate about 200 expatriates will bring 300 schooling children – many of them are looking for an American- styled education,’ said Mr LaVigne. ‘As it stands, there is a waiting list of hundreds of students.’

Notwithstanding these concerns, American firms are here to stay. Some 82 per cent of the Singapore-based members expect their companies’ business to grow in the next two years, and 71 per cent expect to increase their profits.

None of the executives surveyed expect a reduction in business for their companies.

Elsewhere in the region, sentiment among the 382 American executives surveyed was equally bullish. Some 62 per cent believe the region will be more important to their company’s revenue, given the recovery of the regional economies, improvements in infrastructure and limited growth opportunities in other regions.

‘Asean is still a very, very attractive destination for the US,’ said Mr LaVigne.

sookzhen@sph.com.sg“