Sumitomo Mitsui Banking Corp. has cut the most preferential interest rate on its three-year fixed-rate housing loans to be contracted in June by 0.9 percentage point to 0.6 percent.
The new rate took effect Monday. The unit of Sumitomo Mitsui Financial Group Inc. is offering the lower-rate loans by procuring necessary resources from the Bank of Japan’s lending facility aimed at encouraging commercial banks to expand loans.
Banks can borrow funds from the BOJ facility, set up late last year, at an interest rate of 0.1 percent.
Sumitomo Mitsui Banking and other banks are set to raise the interest rates on their five-year and longer housing loans due to a recent spike in the benchmark long-term interest rate, measured by the yield on the newest issue of 10-year Japanese government bonds.
There are growing concerns that the hikes in the loan rates could dampen housing investment.
Under the circumstances, Sumitomo Mitsui Banking decided to tap the BOJ facility to help reduce interest rate burdens for home loan borrowers.
It is reportedly the first major bank to use funds from the BOJ lending facility for the purpose of easing housing loan burdens. The bank has set up a ¥100 billion fund for the lower-rate three-year housing loans, using resources from the BOJ, sources said.
Other banks may follow suit as competition for housing loan borrowers is intensifying, industry watchers said.
Sumitomo Mitsui Banking will raise the most preferential interest rates on its new fixed-rate housing loans of five to 35 years for June by 0.15-0.37 point from the previous month. The rate for mainstay new 10-year loans will be raised by 0.2 point to 1.6 percent, compared with a record low of 1.3 percent for December last year.
Mizuho Bank, Bank of Tokyo-Mitsubishi UFJ and Resona Bank will also raise the fixed rates on their 10-year housing loans by 0.2 point to 1.6 percent.
Banks are finding it difficult to attract customers with their loan rates because they set their housing loan interest rates at almost the same levels.
Against this background, banks are striving to differentiate themselves by offering such services as simplifying procedures needed for moving up the repayments of all or part of outstanding housing loans and selling an insurance product that would exempt loan borrowers from repayments when they lose their means of income.