Loan rates expected to rise with demand
Fulton Mak and Sandy Li
Against backdrop of brisk home sales, banks have less need to offer buyers incentives
Rising inflation and falling interest rates are luring Hong Kong investors to assets offering a higher growth potential such as physical real estate or property stocks.
However, as there are more buyers now looking for mortgages, banks have fewer incentives for taking out home loans, or are more choosy about whom they lend to.
There were 756 transactions in the secondary market recorded at 50 key housing estates between October 22 and 28, according to property agent Ricacorp Properties. That was 10 per cent higher than the 693 transactions of the previous week, which also saw the highest sales volume since the second week of March 2005. Home prices have increased 2.6 per cent.
After a cut in the prime lending rate on September 19, many small- to medium-sized banks also cut the discounts to prime lending rates at which they make home loans, or reduced cash rebate offers.
HSBC, the fourth-largest lender by mortgage value, joined its mid-sized rivals on Monday in increasing its mortgage rate for new homebuyers. It reduced the discount at which its home loans are offered from prime minus 2.88 per cent, to prime minus 2.75 per cent. With its prime lending rate at 7.5 per cent, this meant a new mortgage rate of 4.75 per cent, versus 4.62 per cent before the move.
'Mortgage rates will probably increase if prime lending rates drop further,' said Hendrick Leung Lee-chung, director and general manager for Centaline Finance, a mortgage broker that belongs to the same group as Centaline Property Agency.
The United States Federal Reserve is expected to announce a 25 basis point cut in US rates today.
'Some medium- to small-sized banks are actually losing money on some of their mortgage business since their funding costs are higher than their home lending rates,' Mr Leung said.
The three-month Hong Kong interbank offered rate has hovered around 5 per cent this month amid a liquidity crunch caused by demand for finance from investors in a string of initial public offerings. Hence any further cuts in prime lending rates could further squeeze the mortgage margins of lenders who raise funds on the wholesale market rather than finance loans from their deposits.
Mortgage rates available on the market range between 2.75 and 3 percentage points below prime lending rates, or an effective 4.5 to 5 per cent. After a rate cut last month, prime rates for HSBC, Bank of China (Hong Kong) and Hang Seng Bank stood at 7.5 per cent while other banks' were at 7.75 per cent.
'If Hibor stays at current levels, the industry's mortgage rates may further increase,' Susanna Liew, Standard Chartered Hong Kong general manager for mortgages and car loans, said.
Mr Leung expects banks will lift their mortgage rate and reduce cash rebates, if the prime lending drops further, in order to ease pressure on their home loans margins. As competition between lenders had declined, banks were putting less effort into promoting mortgage products, he said.
'Home buyers should also be prepared to have more cash in hand before buying a flat, as cash rebates are also likely to be reduced,' he said.
Last month, BOC (HK) ranked as the biggest home lender in Hong Kong by home loan value, with a market share of 13.8 per cent, followed by the Standard Chartered (12.4 per cent), Hang Seng (9.6 per cent) and HSBC (9.5 per cent), according to data from mReferral Mortgage Brokerage Services.