The size of Hong Kong's residential mortgage market soared last month, with 47.7 per cent more new home loans approved in March compared with February, the highest month-on-month growth in two years. Bankers said the exceptionally strong growth was driven by the fall of mortgage rates to their lowest in 30 years. Earlier this month, banks cut savings interest rates for the fourth time this year, from 3.25 per cent to 2.75 per cent, and brought the mortgage rate down to 5.25 per cent from 7.25 per cent at the start of the year. Two years ago the mortgage lending rate was about 12 per cent. Mortgage loan prices were further driven down by an intensifying price war over the past two years as banks slashed the cost of a mortgage from 1.75 per cent above the prime lending rate to 2.25 per cent below the prime rate. 'The record low mortgage rate and several new property projects sold last month led to an increasing demand for mortgage loans,' said International Bank of Asia senior vice-president Davy Kwan Kwok-ki. However, Mr Kwan said the strong growth in mortgage lending would not continue for long. 'The local economy is still facing a lot of uncertainties as the unemployment figures are high and the economic slowdown in the US and Japan will have a negative impact on the local economy,' he said. Mr Kwan believed the property market would only fully rebound in the second half of the year. The Hong Kong Monetary Authority monthly survey on residential mortgage loans showed the 33 banks most active in the mortgage business approved HK$10.7 billion in mortgage loans last month. This was up 47.7 per cent on the February figure - the highest monthly growth since the 50.4 per cent recorded in May 1999. In February, the value of new mortgage loans rose 10.1 per cent month on month and in January the value rose 14.5 per cent over December. The value of mortgage loans made in December fell 38.1 per cent from November. Last month, 41.7 per cent of new loan approvals were for secondary market transactions. Loans approved during the month but not yet drawn increased 41.3 per cent to HK$7.8 billion. 'Although new mortgage lending increased, margins are continuing to be squeezed,' said HKMA deputy chief executive David Carse, who again warned banks to lend prudently. Of loans approved, 75 per cent were priced at more than 2 per cent below the best lending rate, up from 70.8 per cent in February. Furthermore, 45.9 per cent were priced at more than 2.25 per cent below the best lending rate, compared with 34.9 per cent in February. The loan delinquency ratio - the number of mortgage loans overdue for more than three months, as a percentage of outstanding mortgage loans - increased to 1.36 per cent from 1.34 per cent in February. The average size of new loans decreased to HK$1.34 million from HK$1.37 million in February. Loans for purchases of mainland property soared from HK$11 million in February to HK$65 million last month.