Waiting for Rates to Drop: When Will Singapore’s Mortgages Go Lower?

By Dawn Chew Waiting for Rates to Drop: When Will Singapore’s Mortgages Go Lower? | Updated 04 Mar 2024 4 minutes

Private-Residential-Market-Price-Index-Singapore

At a glance

In 2024, Singapore’s mortgage rates continue to experience fluctuations, affected by global economic shifts. While there’s anticipation of a rate decrease, the timeline remains uncertain. As The US Federal Reserve decides on rate hikes and battles a potential recession, these decisions can significantly impact Singapore’s rates. Rental rates might also increase, although at a slower pace from 2023. Newly completed housing projects might ease the supply-demand crunch. Still, with so much uncertainty, potential and current homeowners are advised to exercise caution and seek advice from financial experts to secure the best home loan rates

Introduction

Entering the latter half of 2023, many homeowners and prospective buyers may ask: Given that we may be at peak, will Singapore’s mortgage rates decrease?”

The straight answer is a definitive yes. While the rates are set to decline, the exact moment remains elusive.

This article will examine the factors influencing Singapore’s mortgage rates. We’ll also offer strategies for homeowners to navigate elevated loan interest rates and shed light on potential timelines for when mortgage rates might decrease in 2023.

Why are mortgage rates rising in Singapore?

Singapore’s economy is compact and open. Therefore, it is sensitive to any notable shifts in global interest rates. A significant influencer of Singapore’s mortgage rates is the US Fed rate, given the US’s stature as the world’s dominant economy. 

Quick price surges and consistent rate augmentations by the US central bank have prompted central banks worldwide, including the Monetary Authority of Singapore(MAS), to adopt an assertive monetary tightening policy.

Therefore, the decisions made by the US Fed on any potential rate hikes will critically influence Singapore’s mortgage rates. The US Fed has indicated intentions for two more rate increases this year in an ongoing battle with inflation.

In anticipation of any imminent Fed rate change, SIBOR and SORA(Singapore Overnight Rate Average) will become more volatile as they attempt to forecast the direction in which interest rate shifts. Typically, these benchmark rates tend to escalate. Consequently, as the US Fed intensifies its rate hikes, home mortgages in Singapore might like a rate surge.

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Important Info

From 2022 onward, SORA has been established as the benchmark against which floating-rate mortgage packages in Singapore are assessed. The complete phase-out of SIBOR and SOR is projected by 2023. Notably, SORA mirrors the movements of the US Fed rate quite closely. Since SORA reflects past data and is not directly pegged to international interest rates, it’s seen as more dependable, transparent and precise than SIBOR.

How do US interest rate hikes affect Singapore homeowners?

In 2022, the US Federal Reserve increased seven times. It moved from 0.25% to 4.5%. Then, in the early days of February 2023, there was another adjustment made. It increases federal fund rates by 25 basis points, landing it within a range of 4.5% to 4.75%. This is the most substantial rate in 2007.

These moves were consistent with the Fed’s earlier indications that they intend to keep nudging rates upward until they reign in inflation. The market had foreseen these rate adjustments, so no drastic shifts in residential mortgage rates happened.

Then come May 2023. The US Federal Reserve implemented a modest quarter-percentage-point hike, marking it as the slightest adjustment since the previous March. This move suggested that inflationary pressures are beginning to wane. However, if inflation does not respond to these rate adjustments as intended, the US Fed might be compelled to persist with even more hikes. Such continuous increases could destabilise the already fragile US economy. There is a possibility of triggering a recession, which will lead to a sharp rise in mortgage rates in Singapore.

Will interest rates in Singapore keep going up?

US interest rates peaked at 4.75%, aligning with market forecasts suggesting Fed rates might touch 5.1%. Fed experts have also indicated that the Fed rate go up to 5.1% and anticipate a decrease in these rates to 4.1% in 2024 and further down to 3.1% by 2025. 

Should the Fed maintain its rates at 4.75%, SORA will likely stabilise around 3.5%. Historically, SORA has upheld a differential. Though predicted to be moderate, potential increases in US interest rates post-May 2023 also indicate probable winding down of rate hikes in Singapore. 

By December 2022, Singapore’s 3-month SORA rate stood at 3.09%. It was projected to ascend between 3.3% and 3.5% by the close of the first quarter of 2023. As of February 2023, the rate reached 3.22%. Following a further climb, peaking at 3.61%, there’s growing anticipation of SORA’s stabilisation. Such trends depend on the US Fed’s moves, especially as the US grapples with its debt ceiling.

How can homeowners handle rising mortgage rates?

In times of escalating rates, it’s best to exercise caution. The homeowner must ensure they do not overstretch on housing loan packages or forfeit their negotiation leverage for extended periods, especially in a shifting interest rate scenario(like in 2023).

Given the fluctuating daily SORA, it’s advisable not to prolong the lock-in period, especially when rates have surged or get entangled with elevated fixed rates when they dive. 

Those with existing mortgages should revisit their arrangements and consider pricing, service quality and terms. Post the lock-in phase, it’s worth exploring the possibility of refinancing or repricing loans. But, do weigh the costs. Determine if early redemption penalties are justifiable when compared to potential mortgage payment hikes. 

Current and aspiring homeowners might consider paying slightly more than their monthly instalment. This strategy can provide a cushion for future higher payments. It also creates a financial safety net to handle unforeseen rate hikes.

Financial wisdom remains essential, especially for those looking to buy a home or refinance. Especially so as some economies grapple with the specter+3. of recession.

What effect will increasing mortgage rates have on Singapore rental prices in 2024?

The balance of housing demand and supply predominantly drives rental prices. But it does not look optimistic, regrettably for those in the property market. Current rental indices paint a poor picture for potential renters and buyers. 

A notable uptick of nearly 25% in residential rates was observed in 2022. The trends suggest continued challenges for Singapore tenants this year. The repercussions of climbing mortgage rates will likely squeeze tenant’s budgets further.

Key indicators Change 4Q2022 1Q2023
Price index 3.30% 188.6 194.8
Rental index 7.20% 146.1 158.8
Take-up* 82% 690 1,256
Pipeline supply* -2.60% 46.041 44,846
Vacancy rate* 0.5% point 5.50% 6.00%
*Figures exclude Executive Condominium (ECs)

What we can see in the URA data for 4Q2022 and 1Q2023 is that the rental index has seen a steeper climb than the price index. If supply remains constricted and there are insufficient available units, Singapore residents will have to continue renting at higher rates. 

This ascending rental index underscores the persisting gap in property demand and the scarcity of properties in the real estate market. 

A 2023 market forecast by Savills Singapore indicates both residential prices and rents are poised to elevate amidst global political strains and ascending interest rates. Predictions are for a 5-10% rent increase for private non-landed residential units. 

On a brighter note, while significant rent reductions for both HDB flats and condos seem unlikely, more new housing projects completed may alleviate pressure for tenants. As the construction sector gradually rebounds post-COVID-19, there’s hope for diverse housing choices that offer more affordable options. 

In summary, while 2023 is set to witness continued rent escalations, the pace may be slower compared to 2022.

When will mortgage rates likely fall in Singapore?

So, at the beginning of 2023, mortgage interest rates increased drastically. However, experts in the field anticipate tempering these rates as we transition into the latter half of the year. The US Fed, while signalling potential rate hikes, has assured they won’t be overly aggressive.

There’s a divide amongst housing market observers. Some analysts think the interest rates will not surpass last year’s two-decade high. Others foresee an increase, at least in the early stages of 2023, until inflation stabilises. 

Reviewing the past 30-year interest rate trend suggests we might be at or approaching the zenith. Historically, after such peaks, rates typically plateau or decline. A scenario mirroring the extreme inflation of the 1980s, where inflation surged to 15% and US interest rates exceeded 20%, seems improbable. This is taking into account the US Fed’s current softer stance.

When we hit the imminent peak, rates are anticipated to stabilise and decrease from the high. But the uncertainty still revolves around the timing of this shift. Potential buyers might consider home loan options linked to market-based indicates, such as a compounded 3M or 1M SORA, to benefit from lower rates later in the year.

Industry experts opine that the ongoing escalation of interest rates in 2023 might be challenging. It might nudge the US economy towards stagnation, stagflation or recession. The Fed could stall or reduce interest rates to counteract subdued inflation or recessionary trends.

And if economic recessions push the US closer to a recession, then there is a possibility the Fed could start rate cuts in 2023’s latter half. The outlook remains ambiguous, with inflation and mortgage rate trends being crucial determinants.

Current Mortgage Rates

The tables below provide an overview of the current lowest floating and fixed interest rates for mortgages on both private residential properties and HDB flats in Singapore:

Fixed Rates (Private Properties)
Bank Lock In Period 1st Yr Interest
Standard Chartered 2 years 3.00%
OCBC 2 years 3.00%
Maybank 2 years 3.00%
DBS 2 years 3.00%
Promotion 2 years 3.05%
Promotion 2 years 3.10%
Standard Chartered 2 years 3.10%
OCBC 3 years 3.10%
DBS 2 years 3.10%
Promotion 2 years 3.25%
*Today’s Mortgage Rates – 4 March 2024
Fixed Rates (HDB Properties)
Bank Lock In Period 1st Yr Interest
Promotion 2 years 3.00%
Standard Chartered 2 years 3.00%
OCBC 2 years 3.00%
Maybank 2 years 3.00%
DBS 2 years 3.00%
Promotion 2 years 3.05%
Standard Chartered 2 years 3.10%
DBS 2 years 3.10%
Promotion 2 years 3.25%
*Today’s Mortgage Rates – 4 March 2024
Floating Rates (Private Properties)
Bank Lock In Period 1st Yr Interest
SBI 2 years 3.95%
Maybank 0 year 4.10%
Promotion 0 year 4.15%
RHB 2 years 4.17%
OCBC 2 years 4.20%
Maybank 1 year 4.20%
DBS 0 year 4.20%
DBS 2 years 4.20%
Promotion 2 years 4.25%
Standard Chartered 2 years 4.25%
*Today’s Mortgage Rates – 4 March 2024
Floating Rates (HDB Properties)
Bank Lock In Period 1st Yr Interest
SBI 2 years 3.95%
Maybank 0 year 4.10%
OCBC 2 years 4.20%
Maybank 1 year 4.20%
DBS 0 year 4.20%
DBS 2 years 4.20%
Promotion 2 years 4.25%
Standard Chartered 2 years 4.25%
Standard Chartered 0 year 4.30%
Maybank 0 year 4.37%
*Today’s Mortgage Rates – 4 March 2024

Tips for finding the lowest home loan interest rates in 2024

Want to save money on your home loan? Then, you need to get a lower mortgage rate on your home loan, which can save you money over the tenure. We have a 3-step guide to help you secure the best deal:

  • Watch the US rates

Home loan rates change often. Keep an eye on the US Fed interest rates to see their trends and get the best home loan deal.

  • Know your credit score

Banks look at your credit score or creditworthiness to see if they can give you a loan and at what rate. You can secure a lower home loan rate with a high credit score. Therefore, before you apply for any loan, check your credit score and contact the credit bureau to fix any errors. 

  • Shop around for loans

Don’t just pick the first loan you see. Use our mortgage calculator and comparison platform to find the best one. If you’re unsure, reach out to our loan experts at Roshi.

What advice do home loan experts have?

Predicting the exact movement of mortgage rates is challenging. As we journey into 2024, the market will continue to fluctuate. Borrowing costs are predicted to remain high. Mortgage rates may also experience changes, though any potential rate increase might be gradual.

Homeowners need to stay financially cautious in any situation. Seeking advice from financial advisors or mortgage brokers can provide more clarity on dealing with the market conditions and their implications.

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