Hong Kong mortgage costs spiking with 97% on floating rates

ALMOST all homebuyers in the world’s least affordable housing market are tied to a floating interest rate, making the city’s property market among the most vulnerable to tightening monetary policies.

Nearly 97 per cent of mortgages in Hong Kong are tied to Hibor, the city’s benchmark interbank rate, according to July data for new loans by the Hong Kong Monetary Authority. This is likely 1 of the highest in the world, and compares with nearly 17 per cent in the UK and more than 70 per cent in Japan.

The financial hub has been forced to hike rates 5 times this year, moving in lockstep with the US Federal Reserve as the Hong Kong US dollar is pegged to the greenback. That has caused the 3-month Hibor to climb to the highest since 2008.

The rate hikes could make Hong Kong’s housing the least affordable in 24 years, according to Bloomberg Intelligence analysts Patrick Wong and Francis Chan.

While Hong Kong’s homebuyers with a Hibor-linked plan are protected by a price cap, banks have increased it recently. HSBC Holdings boosted its prime rate by 12.5 basis points to 5.125 per cent on Thursday (Sep 22).

That means that for a typical 30-year loan of HK$5 million (S$903,559), the monthly repayment will now be HK$20,745, 1.6 per cent more than before the bank’s hike, according to mortgage consultant mReferral Mortgage Brokerage Services. This comes after buyers already pay higher amounts alongside Hibor’s climb this year.

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Hong Kong finance chief says no sharp risk to property prices

Hong Kong’s property market is in a downturn amid rising borrowing costs, an exodus of residents and a weakening economy. To give customers the option of repaying a fixed monthly amount, HSBC launched a new 1-year, fixed-rate mortgage plan in August and analysts expect more banks to do the same. BLOOMBERG