Big lenders watch and wait on Fed, but say more rate rises are looming

PUBLISHED : Tuesday, 21 June, 2005, 12:00am
UPDATED : Tuesday, 21 June, 2005, 12:00am

Only one lender followed Bank of China (Hong Kong) yesterday in tightening mortgage terms for new borrowers, but big lenders warned they expect interest rates to continue rising. Some are waiting for next week's US Federal Reserve meeting before considering a move.

A day after BOCHK raised mortgage rates on loans by a quarter percentage point for the second time in a month, small lender Wing Lung Bank raised mortgage rates for most customers to between prime lending rate minus 2.25 per cent and prime minus 2.5 per cent, from prime minus 2.5 per cent.

Four other big lenders - the Hongkong and Shanghai Banking Corporation, Hang Seng Bank, Bank of East Asia and Standard Chartered - said they would study market conditions before following suit. A similar decision by BOCHK three weeks ago led to an industry-wide tightening of mortgage terms.

Hang Seng Bank vice-chairman and chief executive Raymond Or Ching-fai said the bank would await the Fed's meeting on June 30 before deciding whether to tighten mortgages.

Mr Or expects mortgage rates to rise by a further 1.25 percentage points this year. The rates have gone up more than 1.5 percentage points in 2005.

HSBC executive director Peter Wong Tung-shun said: 'I think there's a big chance that the US Federal Reserve will raise interest rate by another 25 basis points. Hong Kong banks will follow.'

Acting Chief Executive Henry Tang Ying-yen said the interest rate was 'only one of the many factors' influencing flat-seekers. But Mr Wong said that, while rates were still relatively low, lenders would continue tightening mortgage terms to maintain profit margins, and that would, sooner or later, have an impact on the market.

Property agents say the effects are being felt already. Midland Realty expects secondary market transactions in the second quarter to be down nearly 6,000 on the 27,333 seen in the first quarter.

Centaline Property Agency reports an investor walked out of a deal to buy a $4.7 million house in Sheung Shui, forfeiting a $300,000 deposit, while a Tseung Kwan O flat owner cut the property's price by $410,000, or 10.5 per cent, yesterday - enough to secure an instant sale.