Several banks in Hong Kong are now raising mortgage rates, signalling the end of tight competition in the mortgage market as the overall economy recovers, according to analysts.
Standard Chartered, Wing Lung and Hang Seng banks have raised the margin they implemented on home loans priced against the Hong Kong interbank offered rate (Hibor) in the past two weeks.
Though Hibor has been the benchmark for HK’s wholesale market, it has become popular for mortgage plans when it dipped in the past few years. Some mortgages are also priced against the prime rates, which is a preferred retail benchmark for products like personal loans and tax.
Meanwhile, Bank of East Asia and Citibank also confirmed they would follow the mortgage rate increases, lifting the margin for Hibor, while HSBC said it will still closely monitor the market trend before making a further decision.
Citibank said it plans to raise the interest rate of Hibor mortgages to Hibor plus 0.8 percent to 1 percent within the next two weeks. Currently, the bank offers rates at Hibor plus 0.7 percent.
The average rate for a three-month Hibor hit 0.25 percent this year, down 0.2 percent in the previous year.
The bank said the margin for Hibor-based mortgages had been low in recent months. “We face cut-throat pricing in this market,” said Lawrence Lam Chi-kong, director of sales and secured lending business at Citibank. “The rise can help our bottom line.”
When the financial crisis struck two years ago, banks saw a huge decline in commercial lending to Hong Kong companies, and mortgage lending seemed to be the safer bet, thus lowering their Hibor-based mortgages to compete for business.
“Now that the economy is picking up, banks have more options than just mortgage lending and we are seeing a rise,” said George Leung, Asia-Pacific adviser on strategy and economics at HSBC.
He added that “even after the three banks raised the mortgage rate to around Hibor plus 0.8 percent, it is still a low margin for banks, as the usual rate is at least 1 percent above the Hibor.”