Banks get generous in battle for mortgages
Competition among banks to win mortgage customers is escalating as home-loan business declines due to the drying up of residential transactions.
In addition to generous lending interest rates, banks are raising cash rebates to lure customers.
Citibank, one of the most aggressive players, said it would consider extending cash rebates of up to 10 per cent of a loan amount on secondary residential transactions.
Citibank launched the aggressive package, including the highest percentage of rebates in the industry, to buyers of units in Sun Hung Kai Properties' The Leighton Hill luxury development in Happy Valley.
Its package is more attractive than other banks' terms, offering cash rebates of about 6.5 per cent of the loan size at a mortgage rate of 2.25 percentage points below prime.
Citibank country officer Chan Tze-ching said several buyers at The Leighton Hill had taken the package since the offer began about two weeks ago.
For instance, the buyer of a HK$17.25 million apartment could receive cash rebates of up to HK$1.2 million on a 70 per cent home loan at the prime lending rate (9.5 per cent) under Citibank's package.
The scheme required a seven-year lock-up period, he said, with heavy penalties for early repayment.
The package was drawn up because mortgage-loan business had declined from last month as a result of thin trading in the housing sector, he said.
Property transactions dropped to 7,562 deals last month. Agents expected sale-and-purchase agreements would fall by 20 per cent this month.
Mr Chan said that to generate more mortgage business, Citibank might consider expanding coverage to the secondary market.
However, the scheme would be stopped if market activity rebounded.
Property agents said the latest mortgage package, if extended, would boost the secondary market because it could ease buyers' financial burdens.
Mr Chan rejected claims the bank was being aggressive, because it had only repackaged the terms to meet different demands from home-buyers.
Instead of incurring a long-term, low lending rate, he said the bank preferred to pay a higher up-front cash allowance to borrowers.
Most banks offer a mortgage rate of 2.25 percentage points below prime, with cash rebates of 6 per cent to 7 per cent of the loan.
'Different banks have their different packages to target customers' needs,' Mr Chan said.
Intensifying competition had squeezed profit margins of banks significantly, but a mortgage price war was unlikely, Mr Chan said.
Liu Chong Hing Bank executive director Nam Lee-yick said the bank would raise cash rebates to borrowers to 6 per cent from 5.5 per cent for residential properties built since 1980.
He said the bank followed the market trend to stay competitive, and secondary home-buyers were the target customers.
Mortgage-loan business had declined this month because the market was quiet as Lunar New Year approached, he said.
Since the mortgage insurance scheme was introduced in August, the Hong Kong Mortgage Corp (HKMC) had processed about 800 mortgage cases worth HK$1.52 billion to enable borrowers to raise home loans to 90 per cent of property value.
The scheme raises the limit of insurance cover from 15 per cent to 20 per cent of a property's value, making possible mortgage lending of up to a ceiling of 90 per cent.
An HKMC official said the number of applications had increased because banks were willing to accept the insurance charge to attract business.
Smaller banks are especially keen to expand their home-mortgage business, which is seen as a relatively secure lending sector because of the low delinquency rate in Hong Kong.
Even big players are forced to make preferential offers to retain and attract customers.
Besides low interest rates and cash rebates, some banks pay legal fees for borrowers and offer free fire insurance for properties.