Despite the new financial pressure on borrowers, analysts and bankers argue that the rise in rates was long expected and will not affect the property market significantly. Lenders raised their prime lending rate 50 basis points early this month, bringing it to 6.25 per cent to 6.5per cent. The effective mortgage rate now stands at 4.25per cent to 4.5 per cent.

Assuming the market will see as much as a 125 basis points rise in prime by the end of this year, as predicted by some analysts, those who now spend 50 per cent of their monthly salaries to repay home loans will see the ratio increase to 63 per cent.

Apart from the rise in prime, banks have also tightened the spread between prime and mortgage rates.

This rising rates scenario is deterring new property buyers.

In the past five years, more than half of all new mortgage loans were offered at below prime minus 2.5 per cent. Now some banks are offering a rate of between prime minus 1.75 and minus 2 per cent. This compares with prime minus 2.8 per cent in the past year.

Faced with this increasing financial burden, some borrowers might be forced to consider keeping their existing monthly mortgage repayments constant by extending the loan period.

But this option is not recommended as more interest on the loan period would be charged.

The only option for borrowers, and by no means an ideal one, is to consider ways to either widen income sources or reduce expenses.

Since the chances of hefty pay rises seem remote, bonuses, double pay and commissions should be saved to meet mortgage payments.

Some may have to take on part-time jobs or cut back on holiday trips and entertainment.

Downgrading living standards by choosing smaller flats or selling existing ones could also be a possible solution for those property owners already in a bind.

Home seekers without strong financial backing should have second thoughts before entering the market.

The scenario is one where increasing rates will have an impact on the market.

My advice to borrowers is to opt for a loan period of less than 15 years, or a debt to income ratio of less than 30 per cent to ensure repayment of mortgages.

From the perspective of investors, the rising interest rates have eaten into profit margins and the growth potential of rental yields will slow.

It is expected the mortgage rate will rise to 6 per cent by the end of the year and surpass the rental yield achieved by investment properties.

Hendrick Leung Lee-chung is director and general manager of Centaline Finance