Hong Kong borrowers beware as rates continue to rise
- The public should pay heed to warnings against the relevant risks when purchasing property, taking out mortgages or borrowing money for other purposes
With interest rates rising over the past year, the latest increase by local lenders in lockstep with the United States Federal Reserve’s adjustment should not come as too much of a surprise. But it once again puts the spotlight on the economic uncertainties ahead and the need for caution when making property transactions and taking out loans.
The Hong Kong Monetary Authority – the city’s de facto central bank – raised its base lending rate by 25 basis points to 5.75 per cent effective on Thursday, the 11th increase in 17 months. This came after the US central bank raised its target rate by a quarter percentage point to a range of 5.25 per cent to 5.5 per cent, in line with market expectations.
The return of such moves to tame inflation in the US following a six-week break is likely to stave off an economic recession this year. The Fed has also kept the door open for further rate hikes, possibly another later this year, with markets expecting the central bank to remain hawkish until early 2024.
Borrowing costs have inevitably further increased as a result. In Hong Kong, HSBC was the first to raise its prime lending rate, by 12.5 basis points to 5.875 per cent starting on Friday. Its savings rate will rise by the same to 0.875 per cent. That is the highest since 2007.
Hong Kong home prices lose further ground on rate hikes, mortgage pain, supply
Monetary officials are confident that higher rates will not hurt economic recovery or affect the bad-debt levels. It is true that the city is in a better shape when compared to the early stage of the rising interest rate cycle.
But with the economy still weak, the higher rates will add to pressures facing businesses and individuals.
The high cost of mortgage loans will also be a blow to the property market. Official figures showed home prices fell for a second consecutive month in June.
Home prices have fallen by 12.3 per cent since the market reached an all-time high in September 2021.
Whether falling home prices may draw more prospective buyers in the coming months remains to be seen. But the public should pay heed to warnings against the relevant risks when purchasing property, taking out mortgages or borrowing money for other purposes.
