More Hong Kong homebuyers expected to switch to cheaper Hibor-linked mortgages after banks refuse to cut prime lending rates

More Hong Kong homebuyers are expected to shift to cheaper mortgages linked with the Hong Kong one-month interbank offered interest rate (Hibor) after all of the city’s major commercial banks said they would not cut their prime lending rates any further, according to analysts.

The city has two major types of home loans – one priced according to banks’ prime lending rates, the other according to the Hibor. “It is natural that more new home loan borrowers will turn to Hibor-linked mortgages and enjoy lower interest rates for their monthly repayments, as the Hibor is set to follow US interest rates and see further cuts,” said Gordon Tsui, chairman of the Hong Kong Securities Association.

As of January this year, 80 per cent of new mortgages were priced according to the Hibor, according to data by the Hong Kong Monetary Authority, the city’s de facto central bank. In 2008, such mortgages represented only about 4 per cent of new loans, with the rest linked to prime lending rates. The rising popularity of Hibor-linked mortgages over the past decade is very much linked to banks’ reluctance when it comes to cutting prime lending rates.

While the HKMA followed the US Federal Reserve in cutting its base lending rate to 0.86 per cent on Monday, all of Hong Kong’s major banks kept their prime lending rates unchanged. HSBC, the city’s biggest bank, its subsidiary, Hang Seng Bank, and Bank of China (Hong Kong) kept their rates at 5 per cent. Standard Chartered bank and the Bank of East Asia, meanwhile, kept their prime lending rates at 5.25 per cent.

In December 2008 and December 2015 too, when the Fed cut its rates close to zero, Hong Kong banks kept their prime rates between 5 per cent and 5.25 per cent. Their prime rates rose once by 0.125 per cent in 2018, before falling back to the current level in November 2019.