THE DAYS OF deep discount mortgage rates are coming to an end, but not so quickly yet as to deliver a truly hard jolt to the property market. It may seem like a jolt when you look at the red line in the first chart, however. Only four months ago, 93.7 per cent of all new mortgages were being granted at interest rates more than 250 basis points below HSBC's best lending rate (BLR). By the end of June, that figure had dropped to 40.4 per cent and the figures for July, when they come out, will almost certainly see that trend continuing steeply down. But those figures may be a little deceptive. It is only the very deep discount mortgages that the banks are now avoiding. As the blue line on the chart shows, the proportion of new mortgages carrying interest rates of more than 150 basis points below the BLR was still 96.2 per cent in June and this is only a smidgen off the record figure. This suggests that, although most new homebuyers are getting less advantageous terms than they did earlier this year, they are still doing very well on the whole. The real question here, however, is just how much more interest they are paying on their mortgages now that public commentary almost every day features dire warnings that the property market is in trouble because of generally rising interest rates. The second chart puts this in perspective. The red line here represents HSBC's BLR and the blue line represents my calculation of the average new mortgage rate since 1998. I shall concede that my figures are subject to a range of error as I have had to calculate them from other data series, but the error is unlikely to be large. In early 1998, during the height of the Asian financial crisis, the average new mortgage interest rate peaked at 11.4 per cent while the BLR stood at 10.25 per cent. By my calculations, that average new mortgage interest rate then fell to a low of 2.43 per cent late last year, well below a BLR of 5 per cent at the time. Almost everyone was getting those ultra deep discount mortgages, largely thanks to a liquidity boom that resulted from inflows speculating on a revaluation of the yuan. And then we get the immediate past. The BLR has risen 75 basis points from its bottom while my calculations show about a 97 basis point increase in average new mortgage rates. That 22 basis point difference falls within the possible range of error in my figures. It thus appears that most of the increase we have seen in mortgage rates this year results from a higher base lending rate rather than a contraction in the discount from it, which would make that red line in the first chart definitely misleading. Fewer people may have been given discounts of more than 250 basis points but they still got only fractionally less than that figure. And this, of course, raises the question of what will happen when the banks finally see their loan deposit ratios come back over 100 per cent from an absolute low of 76 per cent in late 2003. The trend is now definitely headed that way and it will certainly mean that banks are no longer desperate to get deposits back out to work for any return. When it happens, homebuyers will be hit not only by the general upwards trend in interest rates but the collapse of those discounts that they earlier enjoyed and this will be the time to assess how much of a jolt the property market encounters. They do not seem to be worried yet. There was some alarm that the value of new mortgage loans was down 8.5 per cent in June from May but this is an unreliable indicator as these figures always gyrate wildly from month to month. The fact is that new mortgage loans for the second quarter overall were still 63 per cent greater than in the same period last year. In short, we are still in wait and see territory on the impact of higher mortgage costs.