Hong Kong apartment mortgage owners may be facing some bad news in September as Hong Kong banks look set to raise their lending rates for the first time in twelve years.
This eventuality would be a direct knock on effect from the US Federal Reserve raising interest rates. Hong Kong’s Monetary Authority is required to follow US trade changes due to the currencies being pegged. However banks have in recent years not passed on such rate increases to their customers. This has been because funds have flowed in sufficiently from China and other affluent countries. Now though these funds are flowing to the US rather than HK and a deficit is left, which will need to be covered by the Home Owners.
According to Martin Lam the chief analyst for Asia-Pacific at ATFX, “The era of cheap funding has come to an end. Companies and individuals will need to prepare for much higher funding costs from September onwards.”
Hong Kong apartment owners have a total of HK$1.258 trillion (US$163 billion) in outstanding mortgage loans with banks as of the end of June, with the average size of a mortgage at HK$4.08 million, according to data from the Monetary Authority.
Should rates rise by 0.25 per cent, that would translate into between a few hundred dollars and HK$1,000 extra per month, depending on the size of the loan, but Lam noted that the Fed has predicted rates would further rise by 0.25 per cent in December and four more times next year. “Borrowers will start to feel the pain then,” Lam said.
The official base rate was increase by the HKMA in June to 2.25%. That was the seventh time since December 2015. Commercial banks did not raise their interest rates all during that time. HSBC’s best lending rate is currently 5% while other lenders are between 5% and 5.25 %.
Smaller Hong Kong apartment mortgage lending banks will probably be the first to raise their rates. This is because they do not the same financial resources to fall back on as large banks like HSBC.
The rate at which banks lend to each other is called the Hibor. This is likely to stay set at a high level, which means that there will be pressure on banks to increase lending rates to customers by the end of the year. That is according to the view of Mary Huen Wai-yi, CEO of Standard Chartered Bank in Hong Kong. But she also said that the loan business will not be badly effected by this..
Hong Kong dollar is pegged with the US dollar and this ultimately means that HK needs to follow the US interest rate changes.