Mortgage loan rate may top 3%
Updated: 2015-12-23 08:08
By Oswald Chan in Hong Kong(HK Edition)
Ahead of possible further interest-rate hikes, a mortgage loan service provider in Hong Kong predicts that more local banks will launch fixed-rate mortgage loan products to attract customers who want to lock in their mortgage loans' interest rate expenses. Edmond Tang / China Daily
Hong Kong's mortgage loan interest rate may soar to above 3 percent next year even though the pace of any mortgage loan rate hike will be gradual, predicts mortgage loan service provider mReferral Mortgage Brokerage Services.
The US Federal Reserve raised its federal funds rate by 0.25 percent last Wednesday - the first rate hike in almost a decade - as the US economy gradually improves. However, major mortgage loan providers in Hong Kong, such as HSBC, Standard Chartered Bank (Hong Kong) and Bank of China (Hong Kong), are still leaving their mortgage loan rates intact.
"As local banks are awash with ample liquidity, they need not raise interest rates immediately after the US interest-rate hike. However, the Hong Kong dollar interbank lending rate and short-term cost of funding will inevitably rise," cautioned Yue Yi, executive director and chief executive at Bank of China (Hong Kong).
"The city still needs to follow the trend of US interest-rate movements," he said.
"The cycle of a local mortgage rate hike will be 2 percent this year and the pace of increase will be gradual. Local mortgage loan service providers may lift their rates probably in the second quarter at the earliest," said mReferral Chief Economic Analyst Sharmaine Lau Yuen-yuen said.
According to mReferral, the current effective mortgage rate level is at 2.15 percent.
"Only when mortgage loan rate rises to over 4 percent, then it will make the home affordability ratio (the ratio of income used to repay mortgage loan) rise above 50 percent," Lau said.
mReferral also predicted that more local banks will launch fixed-rate mortgage loan products to attract customers who want to lock in their mortgage loans' interest rate expenses.
It said fixed-rate mortgage loan products will account for 10 percent of the total mortgage loan products in the market, up from the current 6 percent. Currently, the mortgage loan market is still dominated by variable rate products.
"We predict the volume of new drawn mortgage loans will be slashed by 6 percent to HK$235 billion ($30.32 billion) when the market in the second half next year will recoup the losses in the first half," said Ivy Wong Mei-fung, managing director at Centaline Mortgage Broker.
For mReferral, the amount of new drawn mortgage loans will come down 3 percent to HK$250 billion in 2016, reflecting the slight downward correction in local homes prices.
AS for the US rate hike's effect on the homes sector, Lau estimated that real-estate prices will fall 10 percent next year with an expected rise in mortgage loan rates to weigh on mortgage repayments and property investment costs.
Secondary homes prices in the SAR had dived by up to 15 percent on Dec 12 and Dec 13 - the first downward weekend after the first US rate hike since 2006.
"The US rate hike has already been priced in, so it only has a psychological impact on the market. We still believe that local homes prices will fall only slightly by up to 5 percent next year," said Joseph Tsang Hon-ping, managing director at real-estate investment company Jones Lang LaSalle.
"If the interest-rate rise is confirmed as the first shot in a long interest-rate hike cycle, coupled with a drastic increase in residential flat supply, then it will have a significant impact on the market," he warned.
(HK Edition 12/23/2015 page8)