Lower OPR expected to have positive impact on existing borrowers, property sector

PETALING JAYA (July 14): Bank Negara Malaysia’s (BNM) decision to cut the overnight policy rate (OPR) by 25 basis points to 3% is expected to have a positive impact on borrowers and the property sector, said property developers and mortgage firms.

Based on history, banks are likely to lower their base rates by 25 basis points as some of them are still making profit since they raised the base rate (BR) previously, Ideal Mortgage Specialist Sdn Bhd head of marketing Vincent Ching told TheEdgeProperty.com.

“The banks would reduce their BR as well, in order to maintain their competitiveness,” he said. “Normally, when one bank lowers their BR, other banks would follow.”

If banks decrease their BR, the cost of loans will be lower, making current borrowers and property buyers the winner, he added.

However, those who have saved money in the bank will lose as fixed deposit rates will decline in line with BLR.

While BNM has lowered the OPR, banks are still very selective on lending, thus property buyers may still face challenges when they apply for loans, he cautioned.

Nevertheless, now is a good time for borrowers to look for banks offering better interest rates and to refinance loans, but it still depends on whether the existing loans are subject to a lock-in period, Ching added.

“It will not be worth it if the loan has a lock-in period as borrowers will have to pay a penalty if they decide to refinance their loans,” he said.

However, RHB Banking Group retail banking executive director U Chen Hock said new and existing borrowers stand to benefit from the lower cost of borrowing for floating rate loans.

“Most banks’ floating rate loans are benchmarked against Kuala Lumpur Interbank Offered Rate (KLIBOR) and, in some cases, cost of deposits from customers. The lower OPR rate will ultimately affect these benchmark cost of funds and result in lower lending rates,” he said.

While any reduction in the BR and BLR will lower the repayment amount, the tenure of the loan will also determine the actual repayment amount.

Furthermore, the quantum of decrease will also depend on each individual bank as there are many components to a bank’s cost of lending, and the cost of deposits has been steadily rising over the last 12 months, he pointed out.

U also pointed out that existing borrowers who obtained a loan in the past five years may not see much savings when refinancing now, because the cost of mortgage lending had been at its present low level during this period, and borrowers have to pay cost of moving the loan such as stamp duty and legal fees.

Developers: mixed views on impact of OPR

Some developers lauded the move by BNM as the lower OPR would spur economic growth and home ownership.

This will ease the burden on property purchasers servicing their home loans as their monthly repayments for the loans will be lower and they will have extra money in hand to spend, said S P Setia Bhd president and CEO Datuk Khor Chap Jen.

“This reduction also means that more property purchasers will qualify for home loans and it will especially benefit first-time homebuyers,” he said.

The reduction is also good for property developers who have high gearings or plan to borrow future funding from banks as it will reduce the cost of borrowing, Khor added.

“However, despite the lower rates, purchasers are facing tightened lending rules which we hope the authorities will consider loosening in order to boost the current soft property market,” he said.

Mah Sing Group Bhd managing director Tan Sri Leong Hoy Kum believes the lower OPR is likely to have a positive impact on house buyers who were previously on the fence, as they can now invest in an appreciating asset while enjoying lower monthly repayments.

“This will certainly aid home ownership growth for Malaysians and we hope to see more economically friendly and positive measures from the central bank and government, especially in the upcoming budget,” he said.

Leong hopes that there will be more measures to ease the burdens of first-time homebuyers, and expects there is a possibility of easing of property measures over the next few months as financial imbalances have receded.

However, Sunway Bhd property development division for Malaysia and Singapore managing director Sarena Cheah believes the OPR cut by BNM is unlikely to be a significant boost for the property market.

“The interest rate cut will be mildly positive for the sector with the cut in interest rates increasing affordability of property ownership. The 25 bps cut is estimated to reduce monthly mortgage repayment by about 3%,” she said.

Nonetheless, with the recent uptick in property loan applications coupled with the lower rates, Cheah believes demand will return for good quality properties and it may help the recovery of the property sector.

Therefore, with lower monthly repayments and everything else remaining the same, the amount of people qualifying for mortgages should increase, she added.

Could rates fall further?

Going forward, BNM could cut interest rates further in their coming meetings this year but the decision will largely be data dependent, said Affin Hwang Asset Management portfolio manager Sean Ramsey Lee in a statement.

“This cut came as a shock as consensus was not expecting a cut from the central bank this soon,” he said, noting that the last Monetary Policy Committee (MPC) statement — which typically indicates the central bank’s change in stance — in May was neutral.

“However the timing of the cut was more than suitable with inflation remaining low, the ringgit being stable and poor global economic conditions being conducive. Based on MPC’s statement, the cut was largely motivated by the softer external outlook due to Brexit.”

“Overall, the statement had a hint of a dovish tone to it, highlighting the increasing signs of moderate growth momentum globally. This could weigh upon Malaysia’s growth prospects, thus leaving the door open for further easing later,” he added.

Try out one of our super tools, the rental yield calculator, here.