Rate hikes won't trickle through to borrowers: analysts

Homebuyers do not need to be overly concerned about their loan payments, as the central bank's interest rate hikes would only have a limited impact on their mortgages, industry veterans said yesterday.

"What the rate hikes will affect is more on the psychological side, not the real paying side," said Chen Yun-ru (陳韻如), manager of public relations and research at Evertrust Rehouse Co (永慶房屋).

The small hikes should have only a limited effect on buying sentiment, as the increase in mortgage payments will still be in the affordable range, she said.

On Thursday, the central bank announced that it was raising its benchmark interest rates by 0.125 percentage points to curb inflation, the third time since last October. But that does not mean that local lenders will hike their mortgage rates by the same amount.

According to government statistics, the central bank raised interest rates by a total of 0.375 percentage points between last October and last month, but banks only increased their interest rates on loans by an average of 0.125 percentage points during the same period.

Based on this, it is expected that the hike in banks' mortgage rates would not exceed 0.1 percentage points, said Lin Yung-meng (林永孟), manager of the research and development division at Sinyi Real Estate Inc (信義房屋), the nation's largest real-estate agent.

Even if the interest rate on housing loans is raised 0.25 percentage points, borrowers will only have to pay an extra NT$428 per month on a NT$3.5-million, 20-year-installment mortgage.

"Consumers would not feel the pinch," Lin said.

As interest rates are expected to keep rising, Sinyi Real Estate recommended the government's preferential housing loans as the best choice for home shoppers who want to stave off rate-hike pressure.

The preferential loan program offers borrowers a lower interest rate compared with that of local banks. But the scheme's NT$300 billion quota is expected to be used up in May or June, Lin said.

"No matter how much interest rates are hiked in the future, the preferential loan program can help save, at most, hundreds of thousands of NT dollars," according to a report released by Sinyi Real Estate yesterday.

Potential buyers can also choose short-term fixed-rate mortgages, in which they pay a fixed interest rate for the first two or three years, Chen said. In contrast to floating-rate loan packages, this option enables borrowers to avoid interest-rate hikes for the first few years.