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.


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