Lender says consistently high interbank interest rates have forced its hand Bank of China (Hong Kong) (BOCHK), the largest residential mortgage lender last year, will slash cash rebates and raise interest rates on new mortgages today, in a move other banks appear likely to follow within days. A BOCHK spokesperson told the South China Morning Post yesterday that increased funding costs compelled it to raise its best rates for new mortgage clients by 0.25 of a percentage point. 'Consistently high interbank interest rates have forced us to adjust our interest rates on newly approved mortgages,' the spokesperson said. From today, new mortgage loan borrowers will be charged a rate of prime minus 2 per cent to prime minus 2.25, up 25 basis points. With the bank's prime lending rate currently set at 5.75 per cent, new mortgage borrowers will pay effective rates of 3.5 per cent to 3.75 per cent a year. The spokesperson also confirmed that the bank would reduce cash rebates from as high as 0.6 per cent of the loan amount to 0.4 per cent - with no rebate at all offered in some cases. Three years ago, with the property market in the doldrums and no relief in sight, local banks began cutting interest rates to 40-year lows. As late as March this year, borrowers could still find rates of prime minus 2.8, far below anything available in other developed markets. Interbank rates have risen to levels nearly equal to those in the United States since the Hong Kong Monetary Authority tweaked the currency peg mechanism two weeks ago. Both the one-month and three-month Hong Kong interbank offered rates now exceed 3 per cent. Stanley Wong Yuen-fai, director and deputy general manager of ICBC (Asia), said all local banks eventually would raise their best offered mortgage rates. 'Bank of China's decision will lead other banks to follow suit,' Mr Wong said. He said his bank would monitor market reaction to BOCHK's rate rise before making a decision on when to lift rates. Bank of East Asia and DBS Bank are also reportedly considering mortgage loan interest rate rises this week. The impact of rising interest rates on Hong Kong's property market is evident in transaction data from the Land Registry, which show that sales contracts for all types of real estate fell 8.76 per cent by volume last month from April. Property agents report that the secondary market has softened considerably in recent weeks after a sharp increase over the first few months of the year. A Merrill Lynch report issued last week projects housing prices will fall by 20 per cent to 25 per cent by the end of next year as interest rates continue to climb.