The days when you could lock in cheap home loan rates for the first year or two seem to be over, now that banks have quietly jacked up rates for new fixed-rate loans. Just five months ago, banks were dangling teaser rates on the first year of their fixed-rate home loan packages. Maybank had a package that offered 1.68 per cent, while United Overseas Bank’s (UOB’s) FirstZero product carried zero per cent.

Now home buyers would be hard-pressed to find home loan rates fixed on the first year of a mortgage at below 2.68 per cent, as some banks had already raised the rates of certain packages by up to 1 percentage point in recent weeks to as high as 3.98 per cent.

• UOB and OCBC Bank have raised home loan rates for their three-year, fixed-rate mortgages to 3.68 per cent from 2.98 per cent.
• Standard Chartered Bank has raised its rate for its two-year, fixed-rate package to 3.78 per cent a year from about 2.68 per cent.

This means new home buyers will have to grapple with much higher costs of borrowing, if they want the certainty of locking in their interest rates for the next few years.

A new customer will fork out about $3,500 more in interest for the first year on a loan of about $500,000, if the rate has been raised by 0.7 percentage point.

Banks may have turned cautious and are raising home loan rates amid a slowing property market and an uncertain economic outlook. They may be also facing an “increased credit risks on housing loans”.

That said, the higher fixed rates may prompt more buyers of new homes to take up loans linked to transparent rates that they can easily monitor. These include the Singapore Interbank Offered Rate (Sibor), which is the rate at which banks lend to each other, and the swap offered rate (SOR), which is Sibor plus a bank’s lending costs.