HKMC plans 10-year fixed-rate loans

PUBLISHED : Wednesday, 21 October, 2009, 12:00am
UPDATED : Wednesday, 21 October, 2009, 12:00am

The Hong Kong Mortgage Corp will launch a revised scheme offering homebuyers fixed-rate loans for up to 10 years, according to executive director Peter Pang Sing-tong.

'The probability of interest rates going up is higher than them coming down further,' Pang said. He declined to speculate when rates could rise.

He said the fixed-rate plan allowed buyers to secure their mortgage expenses for a period of time without having to worry about changes in interest rates.

At present, new mortgages are either priced against the prime lending rate or the Hong Kong interbank offered rate (Hibor) - the rate that banks charge one another.

HKMC chief executive James Lau said although the current prime rate stood at about 5.25 per cent, it had been as high as 10 per cent in 2000. Hibor stood at a historical low of about 0.1 per cent, although its average one-month interest rate has been 3.9 per cent since 1993.

The government-run corporation has offered fixed mortgages for many years but experienced a lukewarm response partly because of the declining cycle of interest rates.

It has decided to repackage the programme with six fixed-rate plans stretching from one year to 10 years. Homebuyers will be able to get a fixed rate at slightly below the prevailing prime-based mortgage rates of 2 to 2.25 per cent for short-term plans, while the 10-year fixed rate will be below 4 per cent.

Billy Mak Siu-choi, an associate professor at Hong Kong Baptist University, said the fixed-rate mortgage was not attractive when the current mortgage rate was about 2 per cent. 'Homebuyers may have to pay about 10 to 20 per cent more if they choose a 10-year plan, given the current low interest environment,' he said.

Mak said even though the rates for a one or two-year plan might be slightly lower than the prevailing mortgage rate, whether it was attractive would depend on other factors such as fees or penalties for terminating the plan before it expired.

Meanwhile, the HKMC would consider holding back mortgage insurance for investment properties, said Pang.

Concerns about the creation of a property bubble have prompted calls from the public to take measures to cool down the overheated market.

Pang said most people who used the mortgage insurance programme were new homebuyers who intended to live in the property, while investment property buyers accounted for only about 1 per cent of the portfolio.

Lau added that the corporation already had strict measures for providing mortgage insurance to investment properties, such as it should be valued at no more than HK$8 million.

Mak saw the move as an attempt by the corporation to control its own risk rather than helping the government cool down the property market.


The plan allows buyers to secure mortgage costs without rate changes

Fixed-rate loans will be from one to 10 years, with plan choices numbering: 6