Hong Kong property

HSBC ends fixed-rate mortgage in Hong Kong a week after Fed’s rate rise

The move comes as the number of fixed-rate home loans being approved increases as buyers seek safety from further Fed rate increases

PUBLISHED : Tuesday, 27 March, 2018, 7:01pm
UPDATED : Tuesday, 27 March, 2018, 10:57pm

HSBC, Hong Kong’s biggest lender, will stop offering its fixed-rate mortgage plan on Thursday, a week after the US Federal Reserve raised its key interest rate by 25 basis points.

The move comes at a time of fierce competition between banks in Hong Kong to attract mortgage customers. The number of fixed-rates home loans being approved has increased as buyers seek some protection from the possibility of future central-bank rate increases.

Although popular with homebuyers at times of rising borrowing costs, the profit margin on fixed-rate mortgages for the lender gets squeezed every time there is an increase is the base rate.

That could explain HSBC’s decision to withdraw the fixed-rate home loan, according to Frankie Wong, chief operating officer of Hong Kong-based Pan Asian Mortgage.

“It may reflect the rising funding costs, or possibly the quota has been oversubscribed,” said Wong.

A spokesman from HSBC said the deadline for applications for the fixed-rate home loan would be the end of this month as planned, and successful applicants must have the mortgage drawn down on or before June 30. Friday is the beginning of the long Easter holiday weekend, so Thursday is effectively the last opportunity to apply. The scheme opened for applications on February 14.

Still, homebuyers can get a similar deal through other financial institutions.

Last week, mReferral Mortgage Brokerage Services offered buyers of VCC Land’s serviced flats, The Lodge, a 30-year mortgage at a fixed rate of 1.68 per cent in the first year, followed by 2.15 per cent in the second year and 1.3 percentage points above the Hong Kong Interbank Offered Rate (Hibor) for the remaining 28 years. The rate is, however, capped at 3.1 percentage points below the prime rate, which stands unchanged at 5.25 per cent.

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“As the interest rate is entering into an upward cycle, the product’s fixed rates in the first two years will alleviate borrowers’ anxiety about any rate rise that would increase their financial burden,” said Sharmaine Lau, chief vice-president at mReferral.

In January, the ratio of new mortgage loans priced at fixed rates increased to 8.8 per cent from 5.5 per cent in December, according to data from the Hong Kong Monetary Authority.

Lau sees that increasing to at least 10 per cent in the first quarter.

A lender’s profit margin on a fixed-rate mortgage plan is squeezed as Hibor increases.

The one-month Hibor rose to 0.98 per cent on Tuesday from 0.81 per cent on Thursday after Hong Kong Monetary Authority raised the base lending rate, in lockstep with a similar increase by the US Federal Reserve.

Banks including HSBC, Standard Chartered, Hang Seng Bank, Bank of East Asia and Bank of China (Hong Kong) kept their best lending rates unchanged.

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Centaline Property Agency predicted 20,000 new flats would come to market in Hong Kong this year.

“That is the highest since 2004,” said Wong Leung-sing, the firm’s associate director of research.

Under the existing fixed rate plans available in the market, Lau said homeowners could save about HK$3,500 in the first year, and HK$2,400 for the remaining tenure for every HK$1 million borrowed, compared with the market’s plan based on Hibor plus 1.25 percentage points, according to mReferral.

Some buyers may stick with a plan that charges a higher rate even though they could switch to another, generally after a two-year penalty period.

“Other than the rate, we would also consider the attractiveness of other features such as the amount of rebate and the credibility of the bank,” said Jessica Lam, a buyer of a 401-square-foot flat worth of HK$4.88 million. She chose a mortgage with a rate of Hibor plus 1.28 per cent, paying about HK$12,000 a month.

Some market observers insist that the official interest rate is not a decisive factor in people’s home-buying decisions.

“Effects of interest rate talks have been reflected in the market,” said Richard Lee Chi-shing, chief executive of Hong Kong Property Services. “Increases in prime rates will be slow given the high reserves in the local banking sector. The effects on mortgage payments are likely to be mild.”