Hong Kong's three note-issuing banks have decided to keep their prime rates unchanged following the Federal Reserve's quarter-point rate hike, marking the first increase since July 2023.
Hongkong and Shanghai Banking Corp, Bank of China (Hong Kong) Ltd (2388.HK), and Standard Chartered Hong Kong all announced they would hold their lending rates steady. HSBC maintained its best lending rate at 5%, while keeping the deposit rate for Hong Kong dollar savings accounts unchanged at 0.001% per annum for balances of HK$5,000 or above, with zero interest maintained for smaller balances. BOC Hong Kong also held its prime rate at 5% and its demand deposit rate for HKD savings at 0.001%. Meanwhile, Standard Chartered kept its HKD prime rate at 5.25% and its savings deposit rate unchanged as well.
Where the market stands now
According to mReferral Mortgage Brokerage Services Chief Vice President Dennis Cho, the US added 162,000 non-farm payrolls in August, and core CPI rose 0.3% month-on-month - both figures exceeding market expectations. Combined with renewed geopolitical tensions, this prompted the Fed to act earlier than anticipated to prevent inflation from spiraling further.
Why banks can afford to stay put
Cho noted that while Hong Kong's rate trajectory is closely tied to US movements, local lenders are not obligated to immediately follow suit when the Fed adjusts rates. Looking back at the 2022-2023 hiking cycle, the US had raised rates five times by September 2022 before Hong Kong banks made their first upward move, and even then, the increase was a modest 0.125%. HSBC's decision to hold this time provides near-term relief for the property market, he added.
Rate outlook and mortgage implications
The one-month Hong Kong Interbank Offered Rate (HIBOR) stood at 2.9% today, and Cho anticipates it will likely test the 3% threshold in the short term. Based on typical new H-plan mortgages priced at HIBOR plus 1.3% with a cap rate of 3.25%, H-plan borrowers will continue paying the capped rate for the remainder of the year.
On a separate note, only one major bank is currently offering fixed-rate mortgage plans through year-end. While the rate has been raised from 2.73% to 2.93%, it remains 0.32% below the H-plan cap. Given the possibility of further rate increases ahead, Cho expects a steady number of customers to still opt for fixed-rate plans.
Given the lingering uncertainty surrounding US interest rate and monetary policy direction, Cho advises homeowners to maintain prudent, long-term financial planning. Prospective buyers should monitor rate movements closely, avoid over-borrowing when applying for mortgages, keep sufficient reserves, and choose properties that align with their actual repayment capacity.