Major banks to raise their fixed mortgage rates in January

Leading Japanese banks will raise their fixed housing loan rates in January following a Dec. 20 policy tweak by the Bank of Japan that pushed up long-term interest rates, sources said.

MUFG Bank Ltd. and Sumitomo Mitsui Banking Corp. are among the entities that will raise standard rates for their fixed-rate mortgage products, the sources added. Other banks are expected to follow suit.

Each bank sets a standard rate for each loan product and determines the borrowing rate for the product based on the standard rate.

Banks’ standard rates have been gradually increasing since spring in response to interest rate hikes in the United States and Europe.

However, the January rise in standard rates will be “larger than those in the past several months,” said the sources, who all work at major banks.

The banks, which are expected to announce the rise in several days, will individually determine how much their standard rates will rise.

Experts predict the banks will hike their standard rates for 10-year fixed mortgage products by 0.2 percent or so from the rates in December.

Fixed mortgage rates tend to track long-term interest rates, namely, 10-year bond yields.

When long-term interest rates rise, banks’ borrowing costs increase, forcing banks to respond by raising their fixed mortgage rates.

The BOJ decided Dec. 20 to double the upper limit of the 10-year bond yield from 0.25 percent to 0.5 percent.

The BOJ was able to contain the 10-year bond yield with its monetary easing policies.

Following its decision, the 10-year bond yield rose to a high of 0.48 percent but has since fluctuated in the range of 0.3 and 0.4 percent.

Multiple sources from the major banks said the January rise in standard rates will integrate such increases in the 10-year bond yield.

By contrast, variable mortgage rates are influenced by the BOJ’s policies on short-term interest rates.

Because the BOJ hasn’t changed its policies on short-term interest rates, the sources said that the major banks will probably not raise their variable mortgage rates in January.

Fixed mortgage rates have gradually been rising since the start of this year after interest hikes by central banks in the West triggered speculation the BOJ would follow suit, which prompted a rise in the 10-year bond yield.

MUFG Bank increased its most preferential interest rate for its 10-year fixed-rate mortgage to 0.87 percent in December, up 0.04 percent from the previous month.

Sumitomo Mitsui Banking also raised its 10-year fixed mortgage rate to 0.93 percent in November, up 0.1 percent from the previous month.

Seventy-four percent of mortgage holders choose variable interest rates, according to the Japan Housing Finance Agency.

Less than 10 percent of mortgage holders have chosen to pay interest at fixed rates for the entire duration of their mortgages, the agency found.

Experts said that the continued low-interest rate environment led people to choose variable rates.

Takashi Shiozawa, a director for MFS Inc., said the recent rise in long-term interest rates will fuel further demand for variable-rate mortgage products.

“Even if the BOJ ends its negative interest rate policy, it is unlikely to rapidly hike interest rates,” Shiozawa said. “It will be a while before banks’ standard rates for variable-rate mortgage products rise.”

However, experts point out that variable-rate mortgage products are not without risks.

Japan is the only major developed country that has retained a negative interest rate policy after other countries increased interest rates to curb inflation.

Amid concerns about the negative impact of the BOJ’s long-standing significant monetary easing policies, some experts say that a change of central bank governor in April could trigger a shift in its policies.

If the new governor decides to raise short-term interest rates, variable mortgage rates could rise.

If this occurs, it will impact not only new variable-rate mortgages but also existing mortgage rates.

Also, if the BOJ raises the upper limit of long-term interest rates even further, fixed mortgage rates could increase even more.

Experts say the BOJ’s monetary policies under a new governor will determine how much mortgage holders will have to fork out to pay off their loans in the coming years.


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