By Jonathan Yip | Nov 11, 2009
Malaysian Mortgage Rates tipped to Rise
Mortgage Margins Reduce
OSK Research has reported that the margin at which banks have been discounting the interest from the base rate, has decreased. Previously, the margin was at an average of BLR (Base Lending Rate) minus 2.4%, which was then followed by a dramatic shift to an average of BLR minus 1.5% to 1.9%.
In addition, there has been a decrease in the number of ZEC ( Zero Entry Cost) mortgages on the market. ZEC mortgages are typically used by lenders as an incentive to gain more market share, as the lender will pick up the standard refinancing costs, such as legal fees and stamp duty. As there has been only a nominal increase of 0.01% in the Kuala Lumpur Interbank Offered Rate (which, in general terms, is the cost of buying funds between the banks) since the start of October, it does not seem likely that banks have higher costs that they need to cover.
Hence, researchers such as HwangDBS Vickers believe banks may have decided to end mortgage price wars, and increase mortgage rates to increase profits. However, banks still seem to be offering attractive rates for selected new property launches.
Will the Base Lending Rate be affected?
Up until today, homebuyers have tended to take a floating mortgage interest rate due to the attractiveness of the rates compared to fixed rates. In addition, the BLR has been on a downward spiral for the last 10 years, currently standing at a historic low of 5.55%.
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Source: Bank Negara Malaysia
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These reductions in the lenders margins will only affect new borrowers, however could these reduced discount mortgages also mark a possible increase in the BLR? Sharon Ting, a mortgage specialist at Stable Vision SDN BHD, certainly thinks so.
This would then affect not just new buyers: every borrower who has an existing floating rate mortgage would then see their monthly payments increase.
Ting cautions, “Many people adopt a 'don't care' attitude as long as interest rates are low. They will only decide what to do next when there are changes.”
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Sharon Ting, a mortgage specialist at Stable Vision SDN BHD .
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According to Ting, this wait-and-see attitude is dangerous, as a low BLR will not necessarily stay that way. She predicts that the BLR is likely to increase in 2010; how fast will depend on the state of the economy. The World Bank have reported in their half-yearly assessment “Transforming The Rebound Into Recovery” that whilst real GDP is projected to contract by 2.3% this year, a projected growth of 4.1% is predicted for next; this would be expected to bring about a rise in the BLR in line with the forecast economic uptrend.
However, since researchers such as HwangDBS Vickers have concluded that banks may be simply increasing profits presently, there is optimism that any BLR rises will be gradual. This would seem to be confirmed by Malayan Banking BHD president and chief executive officer Datuk Seri Abdul Wahid Omar, who was reported in StarBIZ on November 4th as saying “...we adjust based on competition. If we are able to get sufficient number of mortgages at a slightly higher pricing, obviously that's something we would look at”.
This should not then have a significant effect on the mortgage market as it will give existing borrowers time to adjust to changes and budget accordingly.
Are there other options?
According to Sharon Ting, banks are still offering flexi loans that are a good bargain. Also known as the reducing home loan, the flexi loan can make paying a mortgage down faster and cheaper. It does this by offsetting savings against the mortgage amount, whilst still allowing the borrower access to their savings in the future. This means that the borrower's savings reduce their mortgage balance in the present and therefore reduce the amount of interest payable.
Hence, borrowers that take advantage of this feature and still make their original monthly payments, will reduce their mortgage capital faster, and still have access to their overpayments or savings in the future.
A further alternative is the fixed rate option. Two well known insurance companies offer such packages from between 4.85% to 5.99% fixed.
“A loan goes on for an average of 20-30 years,” Ting states. “In view of that, the instability of a floating rate could be a risk to a homebuyer's long-term financial planning. A fixed rate package can bring about piece of mind.
” For those unsure which is the best route to take, some lenders offer hybrid home loans. This is a product that gives the borrower the security of a fixed rate loan in the first few years and then reverts to a floating rate afterwards.
It could be argued, that this method then does not offer the borrower real “security”, as after the initial period, the borrower would still be subject to interest rate market forces. For some however, this may not be an issue; the main necessity being stability only in the short term, and for these borrowers, a hybrid may be ideal.
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Stable Vision Mortgage Advisory Sdn Bhd |
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03-7729 3068/3060 | F:03-7729 5400 |
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www.sv.com.my |
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88A Jalan SS21/39, Damansara Utama, 47400 Petaling Jaya, Selangor Darul Ehsan |
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