Monitor | New step may not help banks but it does hurt homebuyers
Increase of 0.25 percentage point in mortgage interest rates would make homes even more unaffordable for struggling families
Wednesday's move by HSBC and Standard Chartered to raise the interest rates they charge on new mortgages was no surprise.
Bankers had warned an increase would be inevitable after the Hong Kong Monetary Authority last month ordered them to increase the amount of capital they hold against new residential mortgages to at least 15 per cent of the loans' value.
Considering that Hong Kong's banks had previously set a capital weighting of less than 10 per cent on their mortgage portfolios, the HKMA's move pushes up the capital costs of their mortgage lending significantly.
That cost increase has now been passed on to homebuyers in the form of a 0.25 percentage point mortgage rate increase, pushing the interest rate on a typical new loan up from 2.75 per cent to 3 per cent.
There's a paradox here. The HKMA ordered the city's banks to hold more capital against their mortgage books precisely because it is worried that mortgage rates will rise.
It's a distant prospect. US interest rates, to which Hong Kong's rates are tied, look set to remain at an effective rate of zero for at least the next two years, and to rise only slowly after that.