Hong Kong Rate Cut Expectations Rising, HSBC Bank Launches New Fixed-rate Mortgage Plan
Wang Meifeng, Managing Director of Zhongyuan Mortgage, said that it is expected that the reduction in the Hong Kong Prime Rate will only have a remaining decrease of 0.25% to complete the rate cut cycle. The interest rate on mortgages will then be reduced to 3.25%, still higher than the newly set interest rate of 2.73% by banks. It is anticipated that this new interest rate plan will be well-received.
On August 25, HSBC launched a new fixed-rate mortgage plan, with a fixed rate for the first three years or first five years at 2.73%; thereafter, the rate will be P-1.75% (where P is currently 5.25%). Wendy Wong, Managing Director of Central Mortgage, stated that expectations of a rate cut in Hong Kong are rising, but with only a 0.25% expectation of a decrease in P, the rate will reach 3.25%, still higher than the fixed rate of 2.73% introduced this time. It is expected that this new fixed-rate plan will be popular.
It is understood that residential mortgage loans in Hong Kong are mainly divided into HIBOR loans (interbank offered rate loans) and prime rate loans (P loans). H loans are based on the Hong Kong Interbank Offered Rate (HIBOR) and are calculated as H+X%; while P loans are based on the prime rate of the bank and calculated as P-X%.
In terms of rate fluctuations, P rates are more stable, usually following the trend of US interest rates without a cap. H rates fluctuate more, influenced by market fund supply and demand, and may fluctuate significantly in the short term. They also have a cap, usually at P-X%, making them the mainstream choice for borrowers.
Wong pointed out that major banks are introducing new fixed-rate mortgages and further optimizing rates and benefits. The fixed rate for the first three or five years under this plan is 2.73%, lower than the current H rate of 3.5% (based on the rise of the Interbank rate, the H rate has recently risen to the capped rate). This represents a decrease of 0.77% and monthly payments decrease by nearly 10%.
She anticipated that after a 0.25% decrease in P, the H rate will drop to 3.25%, still higher than the fixed rate of 2.73% introduced this time. This new fixed rate is lower than the current market H cap of 3.5% and the expected rate drop to 3.25% within the year. Additionally, fixed-rate customers can enjoy cash rebates and have a flexible penalty period of up to two years following market rates. After the fixed-rate period, the rate will align with market rates (P-1.75%; P: 5.25%), making this new plan expected to be popular.
Wong noted that after P completes its rate-cut cycle this year, whether rates in Hong Kong will continue to drop will depend on the degree of decrease in the Interbank rate. Based on an actual rate of 3.25% and the current H rate cap rate, the 1-month Interbank rate must drop below 1.95% for rates to fall further. Comparing this to the latest fixed rate plan (2.73%) and the market H rate (H+1.3%), if the 1-month Interbank rate does not drop below 1.43%, the fixed rate of 2.73% will still be lower than the typical market H rate.
She mentioned that today's 1-month Hong Kong Interbank rate is 2.73%, and unless there is a significant change in fund flows, such as a large influx of funds during the May period, the Hong Kong-US interest rate differential is unlikely to be too large, and H rates will still need to be calculated based on the capped prime rate for some time.
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