Friday, August 17, 2012

Analyst: Don't blame UOB for 50-year loan

United Overseas Bank’s (UOB) 50-year home loan has received widespread criticism, with National Development Minister Khaw Boon Wan calling it a “gimmick”.

But Cedric Chng, Research Analyst at Jones Lang LaSalle (JLL) Singapore, said that the bank cannot be faulted for offering a longer-term loan (compared to the standard 30 years in the market) as it strives “to stay ahead of its competitors”.

However, he noted that the 50-year loan is unlikely to benefit genuine home buyers as the total interest to be paid “would be significantly higher than that paid for a 30-year loan”.

Moreover, buyers are expected to have less interest in longer-term loans, considering “the thought of not being debt-free post-retirement and the lower loan-to-value limit on housing loans granted to individuals with outstanding housing loans”, said Chng.

He added that the 50-year loan would be more helpful for investors than buyers.

“As investors focus on the income yield and potential capital gains on an asset, cheaper financing options – at least in the initial years – are bound to entice investors.”

Chng believes that consumers below 30 years of age are unlikely to take up the longer loan tenure as the majority do not own homes yet. But he sees the possibility of parents making the initial down payment and their children taking out the extended home loan.

In addition, he does not rule out the possibility of other banks offering similar schemes, but only if UOB’s 50-year loan sees strong demand. Should that happen, the government “might be forced to intervene”.

View the original article here

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