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SCMP Reporter

The mortgage business in Hong Kong could be in for a radical shake-up with home buyers being able to choose from dozens of United States-style, fixed-rate repay ment options, according to the head of the Hong Kong Mortgage Corp (HKMC).

 Instead of just the existing floating-rate plus prime mortgage scheme that dominates the market, a new range of fixed-rate mortgages were about to come on to the market, Leland Sun, HKMC chief operating officer, said.

 Mr Sun said fixed-rate mortgages, which are widespread in the US and other parts of the world, could be one of the 'innovations' introduced by banks as a result of the HKMC's mortgage securitisation business.

 The HKMC was formed to purchase mortgages from banks and sell them on to investors in the form of securities such as bonds. It went into operation last month.

 Mr Sun said that if the banks offered the HKMC a fixed-rate mortgage it would consider whether or not to buy it.

 According to the HKMC, investors around the world preferred fixed-term securities.

 Lau Ka-shi, vice-president of marketing and research with the HKMC, said investors 'want that kind of paper'.

 However, some property analysts and agents said they did not think SAR home buyers would be attracted to the idea of the fixed-rate mortgages.

 Hong Kong people had become so used to the floating rate idea that they would simply resist being locked into a mortgage rate over the long term, estate agents said.

 Home buyers would stay away from fixed-rate mortgages because inflation was expected to stay low in the near future and it was believed that interest rates would remain low too, agents said.

 Homeowners had enjoyed low mortgage rates for such a long time that they did not consider the possibility of high inflation, like the 20 per cent rate that the US experienced in the mid-1980s, they said.

 In the late 1980s, Hong Kong even enjoyed a period of negative interest rates.

 'People in America would rather have the fixed rate so they can calculate how much they need to spend every month on their mortgage,' said Shih Wing-ching, managing director of Centaline Property Agency.

 'But Hong Kong people like to gamble. Maybe mortgage rates will go down.

 'I don't know if Hong Kong people are ready for fixed rates.'  However, according to Mr Sun there are some good reasons for having fixed-rate mortgages.

 'If you believe that history repeats itself and you could see a period of higher inflation, then fixed mortgage rates do merit some consideration,' he said.

 From the HKMC point of view, having fixed-rate mortgages makes them easier to sell to overseas investors.

 Whether or not Hong Kong will follow the US and develop myriad fixed-rate mortgages is anybody's guess.

 Mr Sun said even a few fixed-rate mortgages would give banks an avenue in which to be innovative.

 'Maybe we can offer some new products,' he said. 'Look at Canada and the US where they have 50 kinds of products. Whether we will get to that point is hard to say. But anything . . . is better than one.' 



Fixed-rate mortgages meet mixed reception