Homeowners beware: Citibank first to raise mortgage rate in Hong Kong
The move could encourage other lenders to follow suit, bringing an end to 12 years of cheap home financing in the city, observers say
Citibank will raise its mortgage rate for new borrowers in Hong Kong, making it the first major bank to bring the curtain down on more than a decade of cheap funding to buy property.
The American lender has increased the interest rate on its home loans by 10 basis points, equivalent to an extra HK$50 a month for every HK$1 million of mortgage. For an average mortgage size in Hong Kong of HK$4 million, the increase means new homeowners will pay about HK$200 per month more on a 30-year loan.
“Citibank periodically reviews and adjusts its mortgage rates to reflect the current market situation. The rate adjustment announced today is due to the need to balance the rising cost of funds and is in line with the bank’s risk management policy,” a spokeswoman for Citibank said.
Other banks have not altered their mortgage rates immediately, but Citibank’s move may encourage them to follow suit, ending 12 years of cheap home loans. Many bankers believe that could happen as soon as next month.
Citibank’s higher rate applies to both types of mortgage plan it offers, one linked to the prime rate and one linked to Hong Kong’s Interbank Offered Rate, known as Hibor.
The cap on the Hibor-linked mortgage will be adjusted to equal the prime rate minus 2.9 per cent from its current level of prime rate minus 3 per cent.
That means Citibank’s Hibor-linked mortgage goes up to 2.35 per cent from 2.25 per cent, while its prime-rate mortgage climbs to 2.25 per cent from 2.15 per cent.
Citibank is keeping its best lending rate – another term for the prime rate – unchanged at 5.25 per cent.
If banks decide to increase their best lending rates, it will have a much greater impact on borrowers as most outstanding mortgages, as well as personal loans and credit card debt are linked to the prime rate, which has stayed at between 5 per cent and 5.25 per cent for more than a decade.
A rise in the prime lending rate, which some bankers believe may come as early as next month if the US Federal Reserve increases the US interest rate at the end of September, would affect all existing mortgage borrowers in Hong Kong.
Citibank is Hong Kong’s seventh largest mortgage lender with a market share of 3.3 per cent as of July, according to data from mortgage brokerage firm mReferral Corporation (HK).
Thomas Lam, a senior director and head of valuation and consultancy at Knight Frank, said the property market would really feel the effects once the “big three” players in Hong Kong followed Citibank’s lead.
“HSBC, Hang Seng Bank and Bank of China Hong Kong have 53 per cent share of the mortgage lending market. If any one of these three were to increase their mortgage rate, then investors and property owners would really start to worry about their payments,” Lam said.
According to mReferral, HSBC has a 22.9 per cent share of the mortgage lending market followed by Bank of China (Hong Kong) at 15.8 per cent and Hang Seng Bank at 14.6 per cent.
“Homeowners should start to feel the pain when we see the best lending rate increased by 1.5 per cent more from the current level. Once the cost of borrowing is much higher, that will discourage investors from betting on the property market.”
Hongkongers held HK$1.258 trillion (US$163 billion) in outstanding mortgage loans with banks as of the end of June. The average size of a mortgage was HK$4.08 million, according to data from the Monetary Authority, Hong Kong’s central bank.
“There could be a chance for Hong Kong banks to increase the best lending rate in the second half of this year. If that happens, it will benefit our net interest margin in the second half,” said Louisa Cheang Wai-wan, the chief executive of Hang Seng Bank, in a result announcement statement.