Mortgage rates start to climb

If you are planning to buy property, better do it fast before the mortgage / housing loan rate increases.

The Star Online reported that new home buyers are expected to make higher payments for their loans with some banks increasing their mortgage rates early this month.

Some banks have even scrapped the moving-cost element – legal fees, stamp duties and other disbursement fees for loan documentation by the banks – from their home-loan offerings. It is learnt that existing home loans would still be maintained at previous rates depending on the terms and conditions of the contract.

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Mortgage rates start to climb
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Some banks have raised their rates to BLR minus 1.8%

PETALING JAYA: New home buyers are expected to make higher payments for their loans with some banks increasing their mortgage rates early this month.

A check on the websites of some banks and information collected from customer service consultants at various banks showed lenders like Maybank, Public Bank, Standard Chartered Bank, Alliance Bank and EON Bank had revised upward their mortgage rates.

Some have even scrapped the moving-cost element – legal fees, stamp duties and other disbursement fees for loan documentation by the banks – from their home-loan offerings. It is learnt that existing home loans would still be maintained at previous rates depending on the terms and conditions of the contract.

Some analysts contacted by StarBiz were caught offguard and were not even aware of the new rates.

Others attributed the move to the current thin margins of banks owing to the low base lending rates (BLR) now.

Malaysian Rating Corp Bhd vice-president and head of financial institution ratings, Anandakumar Jegarasasingam, told StarBiz that one possible reason for the revised rates by the banks was to boost profitability.

“Loan growth for the commercial banking sector has been subdue during the first nine months at an annualised rate of 6.9%, compared to the growth rate of 13.4% in 2008.

“However, deposits have been growing at a faster annualised rate of 20.5% during the same period. This invariably exerts pressure on the banks’ interest margins and eventually profitability,” he said.

A banking analyst with a local research house concurred that the reason banks were increasing mortgage rates was due to thin margins.

“With the price war for mortgage products, it was taking the banks at least three years to break even. That’s why they have the five-year lock-in period in order to reap some profit,” she said.

Malayan Banking Bhd president and chief executive officer Datuk Seri Abdul Wahid Omar said the bank had already revised its mortgage loan because he said the current rate of mortgage loan in the country was too low.

“We are revising our mortgage rates accordingly. If we increase the rate, we may reduce the rates for other loans such as SME loans,” he said yesterday after the 6th Annual Kuala Lumpur Islamic Finance Forum.

He said Malaysia currently had one of the lowest rates in and around the region.

“We can’t speak for other banks but from our own perspective, there was a time when we were looking at BLR minus 2.2%. We adjust based on competition.

“If we are able to get sufficient number of mortgages at a slightly higher pricing, obviously that’s something which we would look at,” Wahid said.

In the current financial year, Maybank recorded a 7% growth in mortgage loans.

EON Bank Bhd group chief executive officer Michael Lor also said that housing loan rates “have started to creep up slightly and this was unavoidable.”

He said as banks began to move into risk-based pricing as well as the implementation of the FRS 139 framework, they would begin to measure the risk and funding cost of their products.

“Banks are becoming more cautious about how they fund their housing loans and the potential risk-reward returns,” Lor said.

The above banks have revised their rates to BLR minus 1.8% from BLR minus 2%–2.3%.

A mortgage consultant at Standard Chartered Bank Malaysia said the bank revised the rates early this month and expected others to do so in the coming weeks. Existing home-loan customers, the consultant said, would still enjoy the old rates subject to their contracts.

According to one of the mortgage consultants at Alliance Bank, the rates had been revised (BLR minus 1.8%) effective Monday.

TA Research economist Patricia Oh views the rise in mortgage rates to the expected increase in the overnight policy rate (OPR) by the second quarter of next year.

She said the export market had shown signs of an uptick although the current economic figures were still at contraction levels.

Oh added that the increased rates would be detrimental to the housing industry as it would discourage customers from owning homes.

MARC’s Anandakumar said the move to raise rates was not without its risks as a “significant re-pricing” may eventually increase mortgage defaults and discourage potential loan applicants.

Unless the banks tread the line carefully, this strategy could possibly backfire as well, he noted.

Meanwhile, HSBC Bank Malaysia Bhd said it was not aware of a potential increase in the average lending rate.

“I’m not aware of that,” deputy chairman and chief executive officer Irene Dorner said at a press conference before a seminar on Budget 2010 organised by the Malaysian International Chamber of Commerce and Industry yesterday.

Dorner declined to comment further, saying only that the bank’s non-performing loan (NPL) rate was at a manageable state.

“We’ve been very pleasantly surprised with our NPL rate which has held very steady and our growth rate has been respectable given what’s been happening in the economy,” she said.

A spokesperson for another foreign bank said its mortgage rates remained unchanged. “Our customers have been calling us up to see if there have been changes in the rates and we have advised them that there is none at the moment.

“It’s business as usual; we just need to wait and see at this point,’’ the spokesperson added.

Source : The Star Online, 04112009