More rate rises on the way, says broker

PUBLISHED : Friday, 02 December, 2011, 12:00am
UPDATED : Friday, 02 December, 2011, 12:00am


Mortgage broker mReferral has joined in the chorus of those who are predicting rising mortgage rates in Hong Kong next year, forecasting that they could well climb to nearly 4 per cent.

'Local mortgage rates are bound to rise further in 2012 despite six increases this year,' said Sharmaine Lau, chief economic analyst at mReferral Mortgage Services. 'Banks have to adjust their mortgage rates in response to changes in funding costs.'

She believes effective mortgage rates might rise a further 150 basis points in the next 12 months.

The M-rate, the effective rate of approved mortgage transactions arranged by mReferral, now stands at 2.44 per cent and Lau expects it will pass 3 per cent next year.

'Whether or not it will surge to 4 per cent will be subject to the global economic environment and capital outflow conditions,' she said.

It would bring the rate back to the normal level, as the average mortgage rate in the past 20 years had ranged between 3 and 4 per cent, she said.

Her view echoes the forecast of analysts and economists who say banks will need to continue to raise their mortgage rates to offset rising funding costs.

Centaline Mortgage Broker yesterday also said it expected rates would pass 3 per cent in the next few months.

According to a recent Morgan Stanley report, mortgage rates may climb to as high as 5 per cent in Hong Kong because most Hibor-linked mortgage loans extended previously will become unprofitable as funding costs increase.

Barclays Capital Asia expects rates to reach 4 per cent to 4.5 per cent by the end of next year.

Standard Chartered Bank on November 19 announced an increase in the Hong Kong Interbank Offered Rate-based mortgage rate of 50 basis points to HIBOR plus 2.5 per cent to HIBOR plus 3 per cent.

Standard Chartered also increased the rate it charges on home loans based on the prime lending rate to 5.25 per cent minus 2 per cent to 2.4 per cent. The previous discount was 2.35 to 2.65 per cent.

This year, banks have increased their Hibor-based loan rates six times.

As a result, the rate difference between the Hibor-based rate and the Prime-rate based is minimal, according to Lau.

More home buyers were opting for the Prime-rate mortgage option, she said.

Lau said the impact of rising mortgage rates on the housing sector remained insignificant compared with the macroeconomic risks.

Mortgage loans drawn down in the market were expected to fall from HK$324.2 billion last year to HK$228 billion this year due to the slowdown of the property market, she said.


the average mortgage rate in Hong Kong in the past 20 years has been between this range