HSBC, the largest mortgage lender in Hong Kong, raised its mortgage rates by 50 basis points in response to the high interbank rates. The increased rate will come into effect on Monday.

For the loan amount below HK$1.5 million, the new mortgage rate will be increased to prime rate - which is currently at 5.25 percent - minus 1.75 percent. In other words, the real mortgage rate will be raised to 3.5 percent from 3 percent.

The mortgage rate for a loan that equals HK$1.5 million or above will be increased to prime rates minus 2 percent. The real mortgage rate will be adjusted to 3.25 percent from 2.75 percent.

A spokesperson for HSBC said the rate hike was made in response to the rising interbank rates, which gauge the cost of lending. The percentage of cash rebate, however, remains unchanged.

The interbank market is tight recently because of the global financial crisis. Banks are cautious in lending that boosted the interbank rates. The three-month interbank rate rose to 3.3 percent on Friday, more than one percentage point higher compared with that recorded a month earlier.

HSBC's rivals, Bank of China (Hong Kong) and Hang Seng Bank, said they haven't made any decision on the rate hike yet.

Stanley Wong, an executive director at ICBC (Asia), said banks are under pressure from high lending costs. Because HSBC is the leading bank in Hong Kong, and other banks are likely to follow, he said.

According to the latest report by mReferral, a mortgage referral service provider, the market share of HSBC was 19.6 percent in August, the highest in Hong Kong, while Bank of China (Hong Kong) ranked second with a 15.3 percent share in local mortgage lending market.

Louis Chan, an executive director at Centaline Property Agency, said the mortgage rate hike will hurt home buyers' confidence.

"The property market is very sluggish and people are unwilling to buy now. The rate hike will definitely deter them from entering the market," Chan said.

"The impact will be serious on mass residential market in particular."

Chan estimates that the total number of secondary market transactions will drop to 5,000 in September, about 20 percent lower compared with August. "In October, the number will drop by a further 10 to 20 percent," he predicted.

Willy Liu, managing director of Ricacorp Properties, said the impact will be minimal on the luxury residential market, "because the high-end market has been frozen for quite a long time."

(HK Edition 09/27/2008 page2)