Cheap mortgages may be over as banks raise rates

PUBLISHED : Saturday, 16 April, 2011, 12:00am
UPDATED : Saturday, 16 April, 2011, 12:00am

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Bankers have a message for householders: the days of historically low interest rates may be numbered.

Yesterday, HSBC and DBS raised their mortgage interest rates based on the Hong Kong interbank offered rate (Hibor). Their move followed a rate rise by Bank of East Asia on Tuesday and others - including Standard Chartered Bank, Bank of China (Hong Kong) and Fubon Bank - are expected to raise rates next week.

'The main factor driving interest rate rises is funding pressure,' said Derek Chung, senior vice-president of customer segments, deposits and secured loans, consumer banking with DBS Bank (Hong Kong).

Although Hong Kong is awash with cash, banks are finding it difficult to attract deposits because investors are looking for higher-yielding investments such as property or gold.

Since 2008, it has been popular for homebuyers to peg their mortgages to the Hibor, when it dipped in line with falling interest rates. The Hibor has traditionally been the benchmark for Hong Kong dollar wholesale lending, such as syndicated loans.

Some mortgages are also priced against the prime lending rate - a favoured retail benchmark for products such as personal loans and tax.

Banks charge homebuyers a premium based on the Hibor. It is at least the fourth round of interest rate rises on Hibor-based mortgages since May last year, according to HSBC.

'This is a turning point where mortgage interest rates can no longer be called historically low,' said Sharmaine Lau, chief economist of mReferral Mortgage Brokerage Services. Lau expects the interest rate for Hibor-based mortgages to reach at least 2 per cent at the end of this year.

The benchmark one-month Hibor stood at 0.2 per cent yesterday. This means mortgage interest rates based on the benchmark will be at levels as high as 1.75 per cent from now on. This is still low compared to average mortgage interest rates of 3 to 4 per cent in the past decade, so rate rises could continue, Lau said.

Yesterday, HSBC's Hibor-based mortgage rate was raised to Hibor plus 1-1.5 per cent from Hibor plus 0.9-1.3 per cent. DBS lifted its rate to Hibor plus 1.1-1.5 per cent from Hibor plus 0.9-1.3 per cent. BOCHK's rate will be raised to Hibor plus 1-1.5 per cent on Monday from Hibor plus 0.9-1.2 per cent. Fubon's rate will be raised to Hibor plus 1.1-1.5 per cent on Monday from Hibor plus 0.9-1.1 per cent. Standard Chartered Bank's rate will be raised to Hibor plus 1-1.5 per cent on Tuesday from Hibor plus 0.9-1.2 per cent. And Bank of East Asia raised its rate to Hibor plus 1.3 per cent from Hibor plus 0.9-1.3 per cent.