Hong Kong banks hike mortgage rate, end cheap money era

Hong Kong's top banks are hiking an important mortgage rate, piling pressure on borrowers and raising the risk of a slowdown in one of the world's most expensive property markets. HSBC Holdings, Bank of China (Hong Kong) and Hang Seng Bank said late on Wednesday they will raise new mortgage rates from Monday. Standard Chartered announced a similar move on Tuesday. Mortgages in Hong Kong are normally either linked to the prime rate, or the benchmark rate Hibor - the Hong Kong interbank offered rate. Hong Kong's de facto central bank has raised its base rate twice this year in lockstep with the U.S. Federal Reserve, but the city's major banks left their prime rates unchanged, as they have ever since 2008 when they slashed them at the height of the global financial crisis. HSBC, HSBC's local subsidiary Hang Seng Bank, and Bank of China (Hong Kong) said they would raise their prime rate-linked new mortgage rate by 10 basis points to prime minus 2.75 percent effective from August 13. This would mean an effective rate of 2.25 percent. They also said that they would raise the cap for Hibor-linked mortgages to their best lending rate minus 2.65 percent. Hibor-linked mortgages normally flip to prime-linked mortgages when a rise in Hibor makes prime-linked mortgages cheaper. Hibor has been trending upwards for the past 12 months. Standard Chartered said it would also raise its prime rate-linked new mortgage rate to the best lending rate minus 3 percent. This is also an effective rate of 2.25 percent, as Standard Chartered's best lending rate is 5.25 percent. It also said it would raise the cap for Hibor-linked new mortgages to Standard Chartered's best lending rate minus 2.9 percent. The news comes after Citibank raised its mortgage rates on Tuesday, effective immediately. Hong Kong people held HK$1.258 trillion (US$163 billion) in outstanding mortgage loans with banks as of the end of June, according to the Hong Kong Monetary Authority (HKMA). The mortgage delinquency ratio remained unchanged at 0.02 percent at the end of June. Private home prices in Hong Kong have been on a record-breaking run for 19 consecutive months, fuelling discontent among residents in the financial hub. They have surged nearly three-fold since 2008, propelled by a supply shortage, low interest rates and big flows of money from Chinese investors. A skilled service worker would need to work 20 years to buy a 650-square-foot flat near the city centre, according to UBS. Reining in the hot property market remains a top priority for the local government, but prices have been rising non-stop since 2016 despite tightening measures. Hong Kong's sky-high property valuations are also seen by analysts as a tangible risk as U.S. interest rates trend higher. The former British colony tracks U.S. rate moves because its currency is pegged to the U.S. dollar. The Federal Reserve kept interest rates unchanged last week, but is expected to raise rate twice more this year, which will spur the HKMA to follow suit.