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News> Hong Kong> Content
Thursday, September 27, 2018, 19:34
HK mortgage rates to rise after Fed move
By Luo Weiteng
Thursday, September 27, 2018, 19:34 By Luo Weiteng

This May 4, 2017 photo shows a tram passing by the HSBC banking headquarters in Hong Kong. (DALE DE LA REY / AFP)

HONG KONG – An era of cheap lending in the world’s most expensive property market has essentially come to an end, as a cluster of banks take a cue from the US Federal Reserve and the Hong Kong Monetary Authority (HKMA) to raise their lending rates for the first time in more than a decade.

The Hongkong and Shanghai Banking Corporation was the first commercial bank in the Asian financial center to boost its best lending rate – by 12.5 basis points to 5.125 percent – for the first time in 12 years, it said in a statement on Thursday.

An era of cheap lending in the world’s most expensive property market has essentially come to an end, as a cluster of banks take a cue from the US Federal Reserve and the Hong Kong Monetary Authority to raise their lending rates for the first time in more than a decade.

Hong Kong's ultra-low-rate environment has prevailed for more than 10 years and is hard to sustain. The lending rate hikes will put an end to a decade of extremely cheap lending

Paul Chan Mo-po, Financial Secretary, Hong Kong 

The Hongkong and Shanghai Banking Corporation was the first commercial bank in the Asian financial center to boost its best lending rate – by 12.5 basis points to 5.125 percent – for the first time in 12 years, it said in a statement on Thursday.

The best lending rate is the interest that the HKMA charges commercial banks.

ALSO READ: HK's Fed-matching hike leaves banks poised to raise rates

This came hours after the HKMA, the city’s de facto central bank, increased the benchmark interest rate charged through its overnight discount window by 25 basis points to 2.5 percent in lockstep with the Fed, effective immediately.

The Fed signaled its confidence in the US economy on Wednesday by raising its short-term rate - a benchmark for many consumer and business loans – by a quarter-point to 2.25 percent. It marks the third hike this year and the eighth hike since late 2015.

"Hong Kong's ultra-low-rate environment has prevailed for more than 10 years and is hard to sustain. The lending rate hikes will put an end to a decade of extremely cheap lending," Financial Secretary Paul Chan Mo-po said on Thursday morning.

He was echoed by HKMA Chief Executive Norman Chan Tak-lam, who expects the Fed to hike the interest rate once more by the end of this year, and three times next year.

READ MORE: HK$ rises 0.6%, clocking its biggest gain in 15 years

"This will bring a fresh bout of volatility to Hong Kong's housing market. Residents and investors should be ready for the rate hike cycle on the horizon," he warned at a media briefing on Thursday morning.

More commercial banks followed suit to increase the borrowing costs. Hang Seng Bank and Bank of China (Hong Kong) said they will raise their benchmark lending rates to 5.125 percent from 5 percent, while Standard Chartered will raise its rate to 5.375 percent from 5.25 percent.

“It is definitely not an easy decision,” George Leung Siu-kay, adviser to HSBC Asia-Pacific, said at a media conference on Thursday morning. “As the escalating Sino-US trade tensions weigh on the global economy, the upcoming rate hike cycle makes matters even worse for commercial banks. In this sense, it is inevitable to raise the best lending rate. 

"The commercial banks will strike a delicate balance between their costs and the benefits of the city's homebuyers, who are bracing for higher mortgage repayments," he added. 

Mortgage loans approved in July increased by 9 percent on month to HK$44.3 billion, according to HKMA data. As of the end of July, Hong Kong homebuyers had a total of HK$1.27 trillion in outstanding mortgage loans, with the average size of a mortgage at HK$4.13 million.

sophia@chinadailyhk.com

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