The decision by HSBC and Standard Chartered to raise mortgage lending rates by 0.25 percentage points should not come as a surprise. Other lenders are likely to follow their lead, as Hang Seng Bank did yesterday.
Ever since the Hong Kong Monetary Authority told major banks to raise the level of capital they set aside to cover new residential mortgage loans, it was only a matter of time before the banks passed on the extra cost to customers. The HKMA order came last month to coincide with the government's measures to cool the property market. It covers eight of the city's largest lenders including HSBC, Bank of China (Hong Kong), Standard Chartered, Hang Seng Bank and Bank of East Asia.
HSBC has raised new home loan rates to between 2.85 and 3.15 per cent, from between 2.6 and 2.9 per cent, while Standard Chartered has adjusted its best lending rates to between 3.1 and 3.5 per cent. The two banks have not raised the rates since 2011. Only new mortgage holders will be affected. And an increase of 25 basis points in the best-lending mortgage rates should still be affordable to many aspiring homeowners.
Still, the rate hike will have a psychological impact on investor sentiment. On the day the rate hike was announced, property agents reported cases of flat sellers lowering their asking prices by as much as 10 per cent. For example, the owner of a 922 square-foot flat in Taikoo Shing lowered its price to HK$13 million, a 7 per cent reduction. The share prices of major developers, such as Cheung Kong and Sun Hung Kai Properties, dropped by 1 and 3.3 per cent respectively yesterday. These moves show the government's efforts - new property levies, tightened mortgage-lending rules and increasing land and flat supply to calm the property market - are having an effect.
But rates will remain relatively low in the near future because of the US dollar peg, as the US Federal Reserve has reaffirmed a loose monetary policy for now. Some investors and aspiring homeowners may look on the latest development as an opportunity to enter the market. But while the rate hike is not expected to mark the start of a new rising mortgage-rate cycle, they must factor into account that it may not be one-off, and a major market correction is still possible.
Everyone agrees current market prices are crazy because of the low rates and an abundance of liquidity. If the latest rate hike introduces a note of caution among flat buyers and investors, it is surely a good thing.