Rate increase 'won't deter home-buyers'

A moderate rate hike of 25 basis points in the second half of this year would not have much of an impact on home-buyers, say bankers.

Government Housing Bank president Khan Prachuabmoh said yesterday that overall lending rates may increase about 0.25 per cent in the second half of this year, while the deposit rate will rise at least 0.50 per cent. He also predicted that the Bank of Thailand will raise its policy rate by 0.50 per cent in the remaining months of this year.

Home-buyers or mortgage holders would not be negatively impacted much by a moderate rate hike, he said at a seminar hosted by the Secondary Mortgage Corporation.

Khan said he did not think the lending rate would rise soon to double digits. For example, the GH Bank minimum retail rate (MRR) is currently 7.50 per cent. The GH bank also charges most of its clients at less than MRR, he said. The average minimum lending rate (MLR) of the five largest commercial banks is currently 7.25 per cent on average.

Banks compete for deposits, resulting in a deposit rate hike in the past few weeks as liquidity starts to sink.

Khan suggested depositors should wait for a peak deposit rate hike before putting their money in time-deposit accounts. For the time being, depositors should put their money in savings accounts, he said. Khan was optimistic that the real-estate market will not be significantly impacted by a rate hike, saying that home-buyers still want to buy homes this year for fear of a price rise due to higher construction material costs.

Moreover, a tax incentive, which ends in March next year, will encourage people to buy homes this year.

Kasikornbank first senior vice president Chatchai Payuhanaveechai believes a rate hike will have less impact than the rising costs of construction materials.

A one-per-cent rate increase would result in only a six-per-cent increase in mortgage instalments, he said. For example, buyers who bought a home worth Bt1 million and pay a Bt8,000-instalment each month would have to pay an additional Bt480 if the mortgage rate goes up one percentage point. So it would not have much affect on existing borrowers. Currently, combined mortgage loans are worth Bt1.45 trillion.

 However, people whose monthly income is not more than Bt25,000 a month may feel the pinch, he said. He suggested that lower-income groups should renegotiate with banks to reschedule mortgage repayments.

 The rise in interest rates would seriously affect home-buyers when the rate goes up to 10 or 12 per cent, he said. He projects the inflation rate this year will be about 8 per cent. He predicts a middle-way increase in the policy rate.