Mortgage rates rise, stocks fall
Homebuyers will have to pay more for their mortgage next week after a round of bank interest rate increases were announced yesterday.
The rises were sparked by surging interbank rates, flowing from the Government's defence of the local currency against international speculators.
Concern that banks were about to increase the prime rate prompted a 3.88 per cent slide in the Hang Seng Index to its lowest close since May 10, 1995. It fell 359.89 points to 8,894.64, on a high turnover of $11.64 billion.
The prime lending rate, which sets the base for mortgage costs, went up from 9.5 per cent to 10.25 per cent. The move followed a decision by the Hong Kong Association of Banks to lift savings rates by three-quarters of a percentage point from 4.75 per cent to 5.5 per cent.
The new rate for home loans will range from 11.25 per cent to 12 per cent depending on the bank's lending policy.
One of the leading lenders, Standard Chartered Bank, set its maximum rate at 12 per cent while the Hongkong Bank and Hang Seng Bank moved up to 11.75 per cent.
The rise means home buyers will need to pay an extra $516 a month for every $1 million borrowed over a 20-year term.
This is the second increase in less than three months. Banks raised prime rates by three-quarters of a percentage point on October 23, the day the overnight interbank lending rate surged to an all-time high of 300 per cent.
Financial Secretary Sir Donald Tsang Yam-kuen said the latest rise was reasonable since banks had to maintain their cost of business at a time of regional turmoil.
Association chairman Mervyn Davies said the resolution for the increase had been reached with 'absolute consensus'.
It was larger than the half a percentage point the market had been expecting, but Mr Davies emphasised the association believed the increase was sufficient under the current market conditions.
Interbank rates continued to surge yesterday with the one-month to six-month charge rising from 14 per cent to 15 per cent, but down from the day's high of 18 per cent after a strong rebound among Asian currencies.
The day saw the dollar end slightly stronger at 7.7430 to the US dollar.
An official from Shanghai Commercial Bank said another increase might be needed if the interbank market remained volatile.
