SIBOR rate Singapore is the interest rates at which banks and financial advisors and institutions lend to one another. When a supermarket sells you groceries like a packet of rice to you, they sell it at a retail selling price. They in turn had earlier purchased the inventory at a cost price or wholesale price from a supplier. SIBOR is the wholesale price that banks and financial institutions buy money (their inventory) to sell it to you at a retail price.
Consider that for a consumable product, the supply chain consist of raw material producers to manufacturers to wholesalers to retailers, and finally to end consumers. So when you are looking at a SIBOR pegged deal while comparing Singapore home loans, the supply chain for your house loan can look like this.
Deposits from customers to time deposits to SIBOR to house loan borrowers.
The key concept to understand is that there is a supply chain involved for funds to end up as your Singapore house loan. At every stage of the supply chain, there is added value. Therefore the price always increases as the products is passed down the supply chain. It will be senseless for business to continue if price decreases instead of increasing.
As with prices of all things that has a monetary value, demand and supply have a very high influence. And since SIBOR is a macro level interest rate, the supply and demand of funds at the national level with play a big part in the determination of Singapore SIBOR rates which will affect your house loan. Also bear in mind that the number of of foreign banks in Singapore far outnumber the 3 local banks.
So here are some major factors that may have considerable impacts on SIBOR rate Singapore.
1) Key business directions of local banks. It will be a huge surprise if you find a Singapore citizen without an account with a local bank. After all, when the Singapore government moves to reward citizens occasionally for contributing to great economic performance, these monetary ‘gifts’ are debited into the Singaporean’s local bank accounts. The movement of CPF investment monies also favor local banks.
The implication of this is that Singapore local banks hold on to a huge amount of Singapore dollar deposits. And how they decide to use these deposits greatly affect the demand and supply of funds that can be loaned to another bank at SIBOR rates. If key players decide to make investments that would lock up a huge amount of funds, it can cause a Singapore dollar wholesale shortage resulting in rising SIBOR rates.
2) Inflation. As Singapore depends highly on imports. MAS intervenes in the value of Singapore dollars to combat inflation. A stronger Singapore dollar against foreign currencies mean cheaper imports that helps control inflation. If the trading band for Singapore dollars expands to allow natural appreciation, short term interest on Singapore dollars can plunge because investors will accept lower rates considering the projected gains from currency appreciation.
However, a stronger currency can prompt international investors to invest more funds in Singapore. And if those funds are to go into the property market since property is a popular form of investment. It can in turn drive up the demand for SIBOR rate funds and increase rates again.
3) Property market. As SIBOR pegged mortgage loans are used to purchase property, it is inevitable that how the property market performs will directly affect the Singapore SIBOR rate. Observing SIBOR rate history tells us that SIBOR went through the roof during the unprecedented property boom of 1997. It also crashed during the Asian financial crisis of 1998 when uncertainty caused everyone to hold back on investments and buying properties.
4) Higher demand for other financial facilities. When economies boom, there is a high demand for funds and credit. As businesses demand more working capital loans to maximize revenue, lenders may find that it is a very lucrative market to loan out business loans at high interest rates. Therefore more funds go towards these financial facilities instead of housing loans pegged to SIBOR. To loan out SIBOR funds at SIBOR rates, lenders will demand a higher interest. This is why when economies boom, SIBOR tend to go upward as well. Other forms of credit facilities like credit cards, personal loans, car loans, equipment loans, etc, will be competing for funds resulting in rising interest rates.
5) Government policies and MAS. The financial environment in Singapore is managed by MAS. What direction the government decide to move will directly or indirectly affect interest rates in Singapore. Measures to cool off the property market in January 2011 was the fourth time in 2 years that the government have stepped in to control a market that many property observers see as overpriced. These measures affect the property market which is discussed in point number 3.
In effect, SIBOR rates are generally considered to be more stable. But note that they can also go through the roof as observed in 1997. For home buyers who are less tolerant to risks. Fixed rates and SIBOR are more suitable options. While SOR is more volatile even though it has been lower than SIBOR for some time. You can also get assistance for home loan quotes which can quickly present you with the most relevant and best SIBOR home loan packages available in the market.