You are here
CIMB customers join forces to challenge bank on mortgage hike decision
MORE than 40 housing loan customers of CIMB Bank Singapore have joined forces to challenge the bank on its decision to raise the floor of its mortgage rates in the midst of a pandemic.
They have created a website (HonestMortgages.sg) to alert the public on CIMB’s actions as well as to enable other affected customers to get in touch.
Members of the group have written in to the relevant authorities and to the bank, but so far they have “not gotten any indication that the bank will rescind their decision”, said a spokesperson for the grouping.
Some of these mortgage loans extended by CIMB were inked as late as March this year, only for the bank to notify customers just a month later that it will be raising the floor rate.
CIMB has declined to respond to queries by The Business Times.
BT first reported on April 25 that CIMB will be hiking the bank’s floor rate for certain floating rate mortgages from an initial 0.1 per cent to 0.9 per cent from May 18, 2020. Following pushback from disgruntled customers, the bank then said it will delay the start date to Jan 1, 2021 and that it will allow customers to switch to another package without imposing any fees.
Floor rates are understood to protect lenders from losses, and introduced as a clause in loan contracts in the case of a collapse in rates where they turn negative.
With a floating-rate mortgage, customers are charged based on the benchmark rate, as well as the accompanying spread. If the floor rate for the Singapore interbank offered rate (Sibor) is set at 0.10 per cent, then even if Sibor drops below 0.10 per cent, the interest charged on the borrower would still be 0.10 per cent plus the spread.
For CIMB, most of the mortgage loans sold are linked to the one-month Sibor. As of June 1, the one-month Sibor rate is at 0.248 per cent, far below CIMB’s new floor rate of 0.9 per cent. Most banks here have a minimum floor rate of about zero.
On the website, the grouping of CIMB customers wrote: “Because of this, the interest on our mortgages became effectively 3x of what we would have paid under the proper arrangements. If interest rates continue to fall, that number could be higher.”
Some of them had also pointed out that banks have already moved to raise spreads for new floating rate packages as Sibor continues to fall, leaving them with little choice even if they do want to switch.
One issue that they want to highlight is that banks usually have clauses that state that they are able to change their rates at their discretion any time.
“Most consumers who noticed this would have hoped that banks would behave reasonably, presumably out of fear of their reputation,” the group wrote on its website. “We are worried that if we let this issue slide, banks will simply take advantage of consumers at the next opportunity. If they can do this during Covid-19, what next?”