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SCMP Reporter

Companies are falling over themselves to offer flexible mortgages since several rate increases have put people off purchasing homes this year

Banks have broadened their range  of mortgage loan options  to attract customers who have been put off buying homes by rising interest rates.

Experts still expect floating-rate mortgages to dominate the mortgage market despite an increase of fixed-rate mortgage products.

The best lending rate among Hong Kong banks increased 50 basis point to between 7.50 and 7.75 per cent last week.

With discounts of 2.25 to 2.5 per cent on prime, most floating rate borrowers are paying effective mortgage rate of 5.25 to 5.5 per cent on home loans.

The latest rate rise has significantly damaged buying sentiment. A typical home borrower  with a $2 million home loan  and an effective mortgage rate of 5.25 per cent is now paying a monthly instalment of about $13,000, or about $3,000 more than in January.

Mortgage brokerage arms of two major real estates agents - Centaline Property Agency and Midland Realty - have teamed up with an undisclosed number of banks to offer mortgage loans as low as prime minus 2.6 percentage points, which translates to a mortgage rate of about 5.15 per cent.

Donald Cheng Wai-hung,  principal vice-president of Midland Realty brokerage arm mReferral,  said some banks  recently turned more aggressive in sweetening deals because of plunging mortgage business.

'It generally takes about a month for new loans to be drawn down. November is the deadline for banks that want to get more loans for the 2005 account,' said Mr Cheng. He advised flat seekers to not just focus on the spread with the best lending rate because banks had prime rates that ranged from 7.50 to 7.75.

'Banks offering borrowers prime minus 2.6 percentage points mortgage rates are all based on a prime rate of 7.75 per cent,' he said.

The prime of 7.75 per cent is the highest among banks.

New home loans approved  last month came to just under $10 billion compared with the April peak of more than $22 billion.

However, only borrowers in a sound financial position can get the full extent of sweeteners offered by banks.

Patrick Chow,  head of research of Ricacorp Properties, said: 'For average people earning about $25,000 per month on a $2 million mortgage loan, the banks are likely to offer prime minus 2.2 to 2.3 percentage points only.'

He said the sweeteners could only help neutralise the effect of interest rate rises for some borrowers.

'Some occupations which generate less stable income, such as taxi drivers who don't own their taxis, will most often need to pay an interest rate of about 2 per cent below prime rate,' said Mr Chow, who advised flat seekers to plan ahead and maintain a healthy cash flow in a bank for more than a year.

'It will then be easier to haggle with banks on the mortgage rate.'

Flat seekers are getting up to 10-year fixed-rate mortgages for the first time, compared with the five-year fixed-rate before.

Six banks - Bank of China (Hong Kong), Bank of East Asia, DBS Bank (Hong Kong), Hang Seng Bank, HSBC and ICBC (Asia) - last week signed an agreement with the Hong Kong Mortgage Corporation to sell fixed-rate mortgages between now and January 31. Fixed-rate  schemes will charge homeowners from 5 to 5.6 per cent for one to 10 years while the interest rate afterward will be prime minus 2.25 per cent.

Developer Hang Lung Properties offered buyers of flats in AquaMarine  in Cheung Sha Wan a three-year fixed-rate mortgage plan with a 5.2 per cent interest rate to lure people looking for a shorter lock-up  period.

Mr Cheng said flat seekers who could not decide whether to go for a fixed or floating-rate mortgage plan should factor in their expectations for the interest rate rise cycle.

'People who expect the interest rate to peak next year should choose a floating instead of a fixed rate,' said Mr Cheng, adding that fixed-rate products are more suitable for people who want certainty in their financial plan.

'Most Hong Kong homebuyers are more used to floating-rate mortgage plans, which have much more variations in the market than fixed-ate products, so I expect up to 90 per cent of loans will be floating rate,' said Mr Cheng said.

Ricacorp Properties customers can borrow up to 99.9 per cent of a flat's price for as low as 2.5 percentage points below the prime of 7.75 per cent for up to 30 years.

Under this scheme, applicants can borrow 95 per cent of the property value as a mortgage, plus another 3.6 per cent to finance the insurance to cover the unsecured portion of the loan [the amount above the 70 per cent limit set by the Hong Kong Monetary Authority], and another 1.3 per cent to pay for stamp duties, property agency fees and conveyancing costs - up to a maximum of 99.9 per cent.



Loan options rise as buyer interest cools