More customer interest in floating-rate home loans amid Sora decline in Q2
In Q2, the three-month compounded Sora fell by 50 basis points, even though the US Federal Reserve did not cut rates during the quarter.
Expectations of the Fed cutting rates ahead also continue to put pressure on the Sora.
At OCBC, one in four customers opted for floating-rate packages – which are typically pegged to the Sora – in July.
'These customers may be expecting a further decline in interest rates and lower monthly repayment amounts,' said Tok Geok Peng, the lender's group head of consumer secured lending.
Nevertheless, the majority of customers continue to choose fixed-rate home packages.
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The interest rate for a fixed-rate loan package is currently still lower than the all-in rate for floating-rate packages by about 0.15 per cent per annum, said Tok.
Jacquelyn Tan, UOB's head of group personal financial services, added: 'Customers do appreciate the certainty provided by the fixed monthly repayment amount over a set period, which gives them peace of mind as they manage their finances.'
At DBS, its fixed-rate packages can be converted into another rate package within the lock-in period, which allows customers to capture potential savings if interest rates fall, said Chelsea Ling, head of deposits and secured lending at DBS Singapore's consumer banking group.
Ling noted that customers still prefer fixed-rate packages for their stability and predictability, especially as rates remain 'very volatile'.
As interest rates fall, home loans remain a key growth area for the trio of local banks.
In Q2, all three reported a rise in customer loans, with OCBC and UOB partly attributing this to increases in housing loans.
As at June 2025, DBS had S$85.5 billion in housing loans, accounting for 19 per cent of its loan book.
OCBC's housing loans made up 22 per cent of its loan book, at S$70.4 billion.
UOB had S$83.5 million in housing loans, representing 24 per cent of its loans.
Rena Kwok, Bloomberg Intelligence senior credit analyst, said that in the second half of 2025, the local banks may increase their fixed-rate mortgages with sound loan-to-value ratios, to support net interest income given their favourable risk returns in the face of anticipated rate cuts.
'Mortgage growth for 2025 is projected to be in the low-to-mid-single digits for the lenders, backed by drawdowns from previously built healthy pipelines and increased borrowers' refinancing needs as rates fall,' Kwok said in a note.
Wealth integration
OCBC's Tok noted that its home loans are a key contributor to the lender's integrated financial services strategy.
The lender's home loan customers hold 1.8 times more financial products than non-home loan customers, particularly insurance products, she noted. Assets under management of home loan customers are also 1.6 times higher.
Tok noted that houses are likely the biggest financial commitment of an individual, hence a conversation on financial planning and insurance – and even retirement planning – becomes an 'organic development'.
OCBC's home loan customers, of which one in four are new to the lender, may also be drawn to open savings accounts at the bank.
'It may seem like a single product, but it's actually the start of a journey on how we could better engage the customers to plan financially,' Tok said.
Going forward, the lender is upskilling its mortgage specialists and looking to go further upstream in their customer's journey, to better understand their needs and allow for more relevant conversations and product offerings, she added.
Tok also sees further synergies to work together with insurance subsidiary Great Eastern to curate products for its home loan customers.
As for DBS, Ling is 'cautiously optimistic' for H2, as she expects to capture loan volume from market transactions.
The lower-interest-rate environment continues to support refinancing activity and improve buyer sentiment, she said.
At UOB, Tan said volume from the primary market will be flat against 2024, as the overall housing market is likely slightly softer amid a cautious buyer sentiment.
But she still expects low-single-digit growth for home loans for 2025, supported by stable demand for new loans, as well as drawdowns from its healthy pipeline, existing customers' repricing requests and lower paydowns by customers.
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