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Banking & finance
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How Hong Kong homebuyers have seen their purchasing power shrink by HK$1 million since January

  • The erosion in buying power comes after increases in both the Hibor and banks’ prime rates
  • HKMA on Friday relaxed its stress-test requirements for new mortgage borrowers by 100 basis points

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Potential buyers look at the model of a residential project in Hong Kong. Photo: Dickson Lee
Pearl LiuandEnoch Yiu
Owning a home in Hong Kong seems to get tougher by the day. While potential homebuyers might have lost HK$1 million (US$127,390) in buying power so far this year, homeowners will see their mortgage payments go up after banks in the city raised their prime rates from today.

Hongkongers with a monthly budget of HK$17,000 for a mortgage could borrow HK$5 million at 1.45 per cent annually from a bank and buy a home priced at HK$5.5 million in January, according to mReferral, a local mortgage broker. Fast forward to Friday, potential buyers with the same budget can only borrow about HK$4 million and buy a home worth HK$4.4 million.

The erosion in their buying power is because of two key references for the city’s mortgage rates, the Hong Kong Interbank Offered Rates (Hibor) and banks’ prime rates, both of which have surged this year.

“Potential homebuyers with limited budgets for monthly mortgages will have no choice but to shift their focus to cheaper homes,” said Derek Chan, head of research at property agency Ricacorp Properties. They should calculate carefully, as mortgages will almost certainly “continue to rise after further US interest rate hikes this year,” he added.

The Hibor has continued to climb after the Hong Kong Monetary Authority (HKMA) lifted its base rate to defend the city’s currency peg to the US dollar, following five interest rate increases by the Federal Reserve this year.

As a result, the mortgage rate for September now stands at 2.875 per cent, mReferral said, versus 1.45 per cent in January.

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