Hoping for banks to slash mortgage rates? Don’t hold your breath, analysts say
Fed’s Sep 18 rate cut has been widely anticipated and local banks have already priced it in for their loan packages
MORTGAGE rates in Singapore are likely to fall as the US Federal Reserve has started cutting interest rates.
But market watchers do not expect a large decline, given that the local banks have already been adjusting their rates lower for some time now.
On Sep 18, the Fed cut interest rates by 50 basis points, bringing interest rates to between 4.75 and 5 per cent. It also signalled further cuts at the end of this year, and over the next two years.
Singapore’s mortgage rates are typically correlated with US rate movements, with local rates rising and falling in tandem with US interest rates.
But the Fed’s September cut has been a widely anticipated and expected move, even though the size of the cut was at the higher end of estimates.
“It’s safe to say that the local banks have already anticipated the Fed’s rate cut, so in some sense, the interest rates that are being offered today have already baked in this scenario,” said Clive Chng, associate director at Redbrick Mortgage Advisory.
Changes in the US also do not directly translate to immediate changes in Singapore’s lending environment, he said.
But with the indication of further cuts through 2026, Chng expects that banks will review their rates in response to the evolving global economic landscape.
As the mortgage market remains competitive in Singapore, banks here are likely to also continually innovate their loan packages to attract new borrowers, he said.
Darren Goh, executive director at MortgageWise.sg, said much of the rate decline will depend on how fast and how much the Singapore Overnight Rate Average (Sora) will come down. This depends on the pace of Fed cuts.
“Rates are not going to fall off a cliff quickly,” Goh said.
“(The pace of Fed cuts) is not a preset path even though they started with a big move – a lot still depends on whether we get to soft or hard landing in the US in 2025,” he said.
Floating rates that are pegged to Sora will likely come down proportionately to interest rate decreases, said Wayne Quek, senior mortgage adviser at Home Loan Whiz.
Based on previous hikes, Quek expects Sora will fall by 10 per cent to around 3.1 per cent from 3.45 per cent in the current round of cuts, and should hold the same for subsequent rounds.
He noted that spreads for Sora packages are usually inversely proportional to interest, however, which means spreads are likely to rise as the Sora falls.
Meanwhile, most fixed rate loans have already priced in the rate drop, he said.
Therefore, the fixed rates should maintain or come down slowly over time as the Fed continues to decrease rates, Quek added.
But MortgageWise.sg’s Goh said fixed rates are unlikely to fall by a lot from current levels until the Sora crashes, if that even happens.
He expects fixed rates will trade between 2 and 2.5 per cent in 2025.
Time to borrow?
Overall, the Fed’s recent action creates a more favourable borrowing environment in Singapore, said Quek.
Prospective buyers who may have hesitated due to high interest rates could find the current climate more appealing, while more individuals may enter the housing market with reduced monthly payments, Quek said.
“(It’s) a good time to review your existing mortgage if you are already out of the lock-in period,” he added.
Nevertheless, Redbrick’s Chng said broader factors such as property prices, affordability, and individual financial circumstances will still play significant roles in driving actual demand.
At DBS, the bank has not observed a significant increase in refinancing enquiries or requests for new loans, said Chelsea Ling, head of home financing for its Singapore consumer banking group.
“Given that it is still early days following the announcement, we believe it may take some time for consumers to fully evaluate their options and adjust their financial plans, especially since a home loan is a heavy commitment for most,” Ling said.
Ling expects new borrowers are unlikely to see significant changes to the current fixed rates offered, as banks have already factored in potential rate cuts when pricing fixed rate packages.
DBS, OCBC and UOB said they will continue to monitor the markets and adjust their offers when needed.
