Banks Use Fixed-Rate Mortgages in Hong Kong `Battlefield'
(Bloomberg) -- Hong Kong’s biggest banks are increasingly locking mortgage rates to lure customers from upstart rivals in the world’s least affordable housing market, where borrowing costs are soon expected to rise.
HSBC Holdings Plc and BOC Hong Kong (Holdings) Ltd. are offering fixed rates of 1.68 percent for the first year of a new mortgage, lower than the 2.15 percent rate that currently prevails in the industry, according to data from Centaline Mortgage Broker Ltd. Fixed-rate loans have surged as a share of new mortgages and Centaline predicts this will rise further as inquiries at the brokerage jumped 44 percent in January from the previous month.
“The mortgage business is a battlefield,” Andrew Chui, head of the personal loan business at Industrial & Commercial Bank of China (Asia) Ltd., said in an interview last week in Hong Kong. “Banks are starting this to win market share as customers are foreseeing higher interest rates.”
The Hong Kong Monetary Authority warned this month that rates may rise faster than expected as the U.S. tightens policy. While the HKMA’s base rate moves in lockstep with the Federal Reserve because of its currency peg, abundant liquidity in the city had so far allowed lenders to avoid raising loan rates. However, the cash sloshing in the system had also fueled rallies in the stock and property markets.
ICBC (Asia) offers a fixed-rate plan on mortgages of at least HK$4 million ($510,000). The program also helps the bank tap potential customers looking for wealth management and other investment products, Chui said.
“The fixed-rate products may not even be profitable in the first one or two years if the pace of rate hikes is fast,” Chui said. “What we are trying to do is to get more new customers so we can have more interaction with them for other products.”
The window of opportunity has opened after the Hibor surged late last year, pushing floating mortgage rates against a cap on loan-rates in the industry. Banks ended a price war last year after the HKMA raised the amount of capital they have to set aside to cover new housing loans.
Hong Kong was named the least affordable housing market for the eighth year in a study by Demographia, an urban planning policy consultancy. Home prices are more than double their 1997 levels, when the city’s housing bubble burst. Secondary residential prices have climbed 14.5 percent in the past 12 months, according to Centaline Property Agency.
The city’s mortgage market is dominated by HSBC, BOC Hong Kong, and Hang Seng Bank Ltd. These have a combined market share of about 61 percent in terms of the number of loans extended for finished apartments last year, according to Centaline Mortgage, up from 57 percent in 2016.
However, smaller lenders such as Standard Chartered Plc and Bank of East Asia Ltd. were trying to claw back with products such as fixed-rate mortgages.
The mortgage business game is changing, said Ivy Wong, managing director at Centaline Mortgage. “They will lose out to other banks if they are not following the trend.”
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