TOKYO, June 12 (Reuters) - Japan’s home buyers are rushing for fixed-rate mortgages to lock in on what they consider rock-bottom rates, in a sign of early victory for the central bank as it attempts to reflate the world’s third-largest economy with a burst of monetary stimulus.
The bold monetary expansion which aims to achieve 2 percent inflation in less than two years has sparked a rise in bond yields and fanned worries among home owners that interest rates are set to rise sooner or later.
Fierce competition for banks is only likely to intensify at the expense of profit margins, analysts and bankers say, as mortgage lending is one of the few areas of growth amid prolonged weakness in corporate loan demand.
Taking advantage of historically low rates thanks to years of ultra-easy monetary policy, roughly nine out of 10 people in recent years took out floating-rate mortgages.
For instance, Sumitomo Mitsui Trust Bank has been offering a floating rate of 0.775 percent since December 2010 for most qualified borrowers.
Mortgage officers at Japan’s major banks say, however, they are seeing a surge in the number of people applying for fixed-rate loans since the beginning of this year.
“Many of our customers are concerned about the possibility of rising interest rates and a growing number of them are choosing fixed rates,” said Fumiyuki Noda, personal loans official at Sumitomo Mitsui Trust Bank.
The bank said the proportion of those getting fixed-rate mortgages jumped to more than 30 percent in April, while the figure was less than 5 percent a year earlier. In May, it exceeded 40 percent, the bank said.
Sumitomo Mitsui Trust and rival banks said that for refinancing, the proportion of fixed-rate loans was even higher.
On Wednesday, real estate and bank stocks underperformed on concerns over a potential rise in mortgage interest rates.
The popularity of fixed-rate loans rose sharply around the time Prime Minister Shinzo Abe led a successful electoral campaign late last year pledging to end Japan’s more than decade-long deflation.
Expectations for inflation, considered critical in stemming price falls, was accelerated after many banks raised fixed rates for home loans in May and June to reflect a jump in Japanese government bond yields following the Bank of Japan’s massive bond-purchasing program, rather an ironic development for the central bank.
Japan’s top three banks, Bank of Tokyo-Mitsubishi UFJ , Mizuho Bank and Sumitomo Mitsui Banking Corp raised 10-year fixed rates for most qualified borrowers from 1.35 to 1.4 percent in May, and then to 1.6 percent in June, reflecting a rise in benchmark long-term interest rates.
Kakeru Nishimoto, personal loans officer at Mizuho, said the proportion of fixed-rate loans was not only rising but so were overall mortgages this year, by 20-30 percent compared with the same period a year ago. “It’s moving above our plan,” he said.
Thanks to growing consumer confidence boosted by optimistic expectations of Prime Minister Abe’s economic policies, the housing market is showing signs of recovery.
Sekisui House Ltd, one of Japan’s biggest homebuilders said last week it posted a record profit for its financial first quarter ended in April, on the back of brisk home sales. “Abenomics is helping housing demand,” a company spokesman told Reuters.
For Japanese banks suffering from paper-thin spreads, consumers’ firmer inflation expectations and rises in loan interest rates is a welcome trend. But competition in the home loans market is only likely to intensify.
When Sumitomo Mitsui Banking Corp moved to cut the 3-year fixed rate to as low as 0.6 percent from 1.5 percent last week, it was immediately matched by rivals Mizuho and Bank of Tokyo-Mitsubishi UFJ.
“We did not fully pass on rising interest rates to customers even when we raised rates,” said a mortgage banker at one of the major banks. “We are watching rivals and doing what the competition demands,” said the banker, who declined to be identified because he was not authorised to discuss the matter publicly.
Additional reporting by Taro Fuse; Editing by Jacqueline Wong