Mortgage lenders see slow business after rise in rates

Major mortgage lenders expect growth in their business to slow in the coming months as the full effects of the recent rise in interest rates take hold.

Hang Seng bank vice-chairman and chief executive Alexander Au Siu-kee said reduced property transaction volumes would slow growth in mortgage lending.

Speaking after the bank's annual general meeting yesterday, he said the effect would not appear immediately as there was a time lag of more than a month between when a property was sold and when a mortgage was drawn down.

Three weeks ago, the United States Federal Reserve raised short term interest rates by 25 basis points causing Hong Kong banks to follow suit.

Simultaneously, the Government allowed developers to pre-sell new properties 15 months ahead of completion, compared to 12 months previously.

The two moves significantly reduced property market activity and caused prices to drop a few percentage points.

Mr Au expects the property market to regain its vigour when prices fall to more affordable levels.

Attending the same meeting, Hongkong Bank chairman John Strickland welcomed the recent modest drop in property prices.

'Prices would probably have got to an unaffordable level at the rate they were accelerating,' he said.

He added that a slight fall in Hongkong Bank's mortgage business would be good for the bank and Hong Kong in the longer term.

Bank of East Asia chairman David Li Kwok-po last week said the bank's mortgage business had experienced a slowdown.

Bank of America (Asia), which claims a 5 per cent market share in newly-booked mortgages, also warned of a downturn.

Chief executive Samuel Tsien said the bank recorded lower mortgage business volume for the first quarter this year compared with the same period last year.

For the first two weeks of April, the number of inquiries for mortgage loans dropped 30 per cent compared with last month.

Mr Tsien expected banks to cut mortgage rates again later this year in order to create more loan demand.

ON A CYCLE Mortgage lending slowdown not expected immediately because of lag effect Lending rates could drop again this year