Rate may rise .25 of a percentage point, pending March figures

The Government Housing Bank could soon raise its mortgage rate by a quarter percentage point as a result of the upward interest rate trend and high demand for home loans.

Khan Prachuabmoh, the managing director of the state-owned housing bank, said the lending and deposit ratio in March would indicate whether or not the bank should raise the rate in April or early May. “If we have to eventually jack up the rate, it could be raise by .25% point. But throughout the year we foresee an overall increase of 1 % point,” Khan said.

Speaking on the sidelines of a property market seminar yesterday, he said a quarter percentage point increase was estimated to increase clients’ monthly instalment burden by 2 percent.

The negative impact is limited as the rate increase will hurt only the 28 percent of the company’s 500,000 clients who are subject to floating rates. The floating rates are now between 5.6-6.25% percent, depending on outstanding loan amounts.

The remaining clients will not suffer from the rate increase as their borrowing rates are fixed for one to five years. After the rate increase, GHB will also allow the fixed-rate clients to renew their contracts but they will have to shoulder a higher rate that should range from 5 to 6.25 % per annum, Khan said.

The rate increase follows the huge amount of loan approvals at the bank during March 1-25, which rose to Bt 9 billion. Since the beginning of the year, the bank has loaned Bt 25 billion, a quarter of its annual target of Bt 100 billion.

“Demand has risen significantly. Normally, the Bt 9 billion monthly figure could be achieved only before the end of the year,” Khan said.

To mitigate the negative impacts of higher interest rates, GHB also plans to offer a longer fixed-rate period of up to 10 years to clients. It is considering issuing bonds worth Bt 39 billion with maturity up to 10 years to match the policy.

If the 10-year fixed -rate contracts are made available, clients will have to shoulder a 5-6% interest rate.

“That is low amid the upward interest trend,” he said.

The bank’s funding currently come from short and medium tern loans with maturity of only one to five years.

Of the total, its raised Bt 40 billion from five-year bonds, Bt 46 billion through provisionary notes aged two to three years, Bt 13 billion through one-year domestic borrowing and about Bt 8 billion through overseas borrowing.

To offer a longer fixed-rate contract, the bank also plans to securities its lending portfolio once the secondary bond market become more active.

“ We are capable of securitising our portfolio given Khan said.

 (The Nation, Source)