Borrowers will not be hit hard, lender vows
Interest rates on mortgages are expected to rise this year but will not surge to the levels they reached during the 1990s real estate boom, said Government Housing Bank (GH Bank) president Chatchai Sirilai.
He said that GH Bank’s current average interest rate is 3%. If the Bank of Thailand raises the benchmark rate by 0.25% next month, GH Bank would not immediately follow suit but would do so in October and only by 0.15%.
Mr Chatchai said GH Bank’s interest rate rise would not affect its borrowers’ instalment payments, given the bank had taken into account the possible rate hike trend when calculating the amount of instalment payments.
However, borrowers will be hit if GH Bank raised the rate by 0.50%, he said.
Mr Chatchai said the housing loan interest rate would not jump to the 9-10% level seen during 1996-1997 when the local property sector was in a bubble. Thailand is not currently in a property bubble, but is rather suffering from the impact of the global economic downturn.
He added that if the central bank raised the rate by 0.25% and GH Bank followed suit with a 0.15% hike, this would cost GH Bank 1 billion baht as it would have to raise deposit rates to be in line with the market trend.
Commercial banks have indicated that higher interest rates are planned for mortgages and auto loans in response to rising financial costs and imminent policy rate hikes.
Nathapol Luepromchai, Bank of Ayudhya’s executive vice-president and head of its mortgage division, earlier said that banks have started to end two-year and three-year fixed-interest rate deals, instead switching to fixed rates for 12-month and six-month periods. He said this move was in line with the upward trend of interest rates.
Analysts expect the Bank of Thailand to raise its policy rate by 50 basis points this year. The central bank’s Monetary Policy Committee is projected to raise the rate by 25 basis points at its next meeting in August.