HSBC has joined the city's mortgage price war in an attempt to regain lost market share, surprising competitors who say the move will intensify competition for homebuyers' business as the property sector starts to pick up. Hong Kong's biggest bank has slashed interest rates by a half percentage point, offering home loans at 2.75 per cent below the prime rate - or 5 per cent in real terms - until the end of next month. Until yesterday the bank was offering loans at prime minus 2.25 per cent, with a rebate of 0.3 per cent of the principal. HSBC's best lending rate is 7.75 per cent - the same as that of subsidiary Hang Seng Bank but lower than the 8 per cent all other lenders in Hong Kong offer. Bank of China (Hong Kong) overtook HSBC in last year's mortgage price war to become the city's biggest mortgage lender. 'The latest offer is our response to the aggressive packages offered by other lenders recently,' said Diana Cesar, regional head of deposits, mortgages and special projects for the bank's personal financial services division. BOCHK and Citigroup recently began offering home loans with interest fixed at 5 per cent for the first six months. This month, small lender Liu Chong Hing Bank adjusted its mortgage rate to prime minus 2.65 per cent plus a rebate of up to 0.5 per cent. With a prime rate of 8 per cent, this represents a minimum mortgage rate of 5.35 per cent, offering little scope for further reductions given a three-month savings deposit rate of 4 per cent, the bank's Brian Cheung Nam-chung said. Mr Cheung said small and medium-sized lenders would need to offer rates lower than HSBC 'if they want to survive'. Stanley Wong Yuen-fai, a director at ICBC (Asia), agreed, but Sunny Cheung Yiu-tong, head of consumer banking at DBS, said: 'It's not worth competing for market share at the expense of profitability.' Mr Cheung said HSBC had taken the market by surprise. 'We have to consider carefully whether to follow suit.' Standard Chartered Bank and Bank of East Asia said they would watch the market closely and review their loans packages. A Hang Seng spokeswoman said the bank might adjust its mortgage offers. Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong has warned banks to be cautious in cutting lending rates as they face additional risk when the cost of capital increases.