Concrete Analysis | Will banks raising their Hibor-linked mortgage rates take the heat out of Hong Kong’s property market? Probably not

Four of Hong Kong’s biggest commercial banks have raised their mortgage rates, following this month’s move by HSBC to tighten Hibor caps and drastically cut cash rebates as lingering economic concerns lead to more prudent risk measures.

According to local media reports, HSBC raised its Hibor-linked mortgage cap by 25 basis points, from Prime minus 2.75 per cent to P - 2.5 per cent, with the prime rate standing at 5.125 per cent. Hence, even though the prime rate has not changed, the effective mortgage rate has jumped from 2.375 per cent to 2.625 per cent. The cash rebate, meanwhile, has been slashed to 1 per cent from an all-time high of 2.1 per cent. Other big banks have reportedly followed suit.

Will this round of mortgage tightening put an end to the high-flying, yet resilient residential market in Hong Kong? Does this move herald the end of the decade-long cheap credit cycle? We don’t think so.

In terms of affordability, such tightening causes a minor uptick in mortgage payments for the average borrower. According to data from the Hong Kong Monetary Authority (HKMA), the average mortgage loan size in the city is around HK$4 million (US$510,000).

Raising the mortgage cap from 2.375 per cent to 2.625 per cent will result in a HK$520 increase in monthly payments (or HK$17 per day), which is unlikely to deter prospective buyers who need a “roof over their heads” from purchasing a flat.

Raising interest rates will tighten the minimum salary required to finance a house and raise the bar of the so-called “stress test”. For a loan size of HK$4 million, the minimum salary will have to increase by HK$1,036 in order to pass the debt service ratio requirement and stress test.