Mortgage lending slumps to lowest level in two years

PUBLISHED : Saturday, 25 February, 2006, 12:00am
UPDATED : Saturday, 25 February, 2006, 12:00am

Holiday hits sales as homebuyers keep hands in pockets and sights on rates

New home loans hit two-year lows last month as the Lunar New Year seasonal slump and interest rate uncertainty kept new homebuyers out of the market.

According to data from the Hong Kong Monetary Authority yesterday, the amount of loans fell for the eighth consecutive month, dropping 20.3 per cent month on month to $5.985 billion, the lowest level since September 2003.

The value of new loans approved by lenders also hit two-year lows, falling 1.6 per cent over the month to $7.557 billion after a drop of 12 per cent in December.

The de facto central bank said the fall in new loan approvals was due to a decline of 27.2 per cent in approvals for primary market transactions and a 14.6 per cent fall in refinancing.

Peggy Tam Lai-king, head of mortgage lending at Hang Seng Bank, said seasonal factors had a large effect on the market, with buyers losing interest in property over the Lunar New Year.

'Buyers are also concerned about whether interest rates will rise further,' she added.

Peter Wong Tung-shun, executive director at HSBC, agreed that uncertainty over the United States interest rate environment was still casting a shadow over Hong Kong's property market.

'As the chairman of the Federal Reserve has been changed, whether the US interest rate will continue to rise is uncertain,' he said.

Mr Wong expects two more rises in the Fed fund rate this year, forecasting that the rate will rise another 0.25 percentage point in March to 4.75 per cent. Whether it would rise further, he said, would depend on US economic figures.

'I think the property market will only reactivate again in the second half of this year,' he said.

Sunny Cheung Yiu-tong, director and head of consumer banking at DBS Bank (HK), said the property market improved slightly this month as more primary properties came on the market.

He said that even though banks have cut their mortgage rates recently - which has helped to boost the refinancing sector - market sentiment would only improve when there is a clear signal that interest rates have peaked.

Hong Kong's mortgage lenders have recently marched into a home loan price war, following HSBC's decision to slash its mortgage rate to 2.75 per cent below the prime lending rate, to an effective rate of 5 per cent.

HKMA data showed the proportion of new loan approvals last month priced at more than 2.25 per cent and up to 2.5 per cent below the best lending rate increased slightly to 39 per cent from 38.3 per cent in December.