Bank fine-tuning mortgage benefits The closer the interest rate hike period is?
The Reserve Bank will hold a meeting next week and banks in Hong Kong are starting to tighten their interbank interest rate (H) mortgage discounts, which will allow the market to keep a closer watch on when the prime rate (P) will be raised. Once P is raised, it will affect the return on investment of the purchase of buildings, which will cause adjustment pressure on the property market.
Once P is going up,
The small and medium-sized banks have recently adopted a conservative approach to contracting buildings. Following last week’s tightening of the H’s ceiling, P’s reduction of 3% (actual interest rate of 2.25 per cent) and a 0.1% increase in interest rate in disguise, banks tightened again yesterday. H is discounted from H plus 1.28% to H plus 1.4%, which is a 0.12% hike in disguise.
The small and medium-sized banks have frequently tightened H by preferential treatment. One is that H has continued to rise, from 0.9% last Monday to 1.3% yesterday; second, US inflation expectations have continued to heat up, and the Reserve Bank may increase it again by 2 to 3 times this year. There is a high chance of raising interest rates next week. Goldman Sachs further expects that the Reserve Bank will raise interest rates for seven consecutive quarters, so that the federal funds rate will increase to 3.25% to 3.5% by the end of next year.
The Reserve Bank will continue to raise interest rates, and Hong Kong will implement linked exchange rates. Hong Kong interest rates should theoretically increase with interest rates. However, since the Reserve Bureau began to raise interest rates at the end of 2015, interest rates have been raised six times so far. However, the interest rate in Hong Kong has not been increased. In order to avoid widening interest rates in Hong Kong, there is pressure to raise interest rates in Hong Kong this year.
At present, interbank interest rates have risen and P has remained unchanged. The spread narrowed to 3.7 per cent. According to past experience, if interest rates narrowed by at least 3 per cent, P would face upward pressure. Since many interest rates for deposits and loans in Hong Kong are referenced to P, once P rises, it will lead the whole body and the market will truly feel that the interest rate hike cycle has started.
In the property market, the increase in P means that the impact of raising interest rates has started to surface. According to the current new building press, 46.3% adopt H, because the H interest rate has reached the upper limit of the interest rate, and the upper limit of the interest rate will rise as P rises. Therefore, whether P or H is pressed, the owners’ contribution burden will increase.
Increase deposit interest rate review
On the other hand, for the property market investors, if the high-risk market has been leased out in the past and the investment return rate continues to decline, it still has a 2% to 2.6% return, much higher than the fixed deposit at the bank. However, when banks upgrade P, the deposit interest rate will also be raised. In other words, not only will the investment cost of buying property rise, but the attractiveness of returns will also drop. Investors have measured whether to deposit their money in banks for interest, or to invest. Once the returns are close, they may look at the investment portfolio, part of the funds or invest in fixed deposits or other investment projects with lower risks.
Of course, in the second half of the year, P may only be added one or two times, and the increase is still very limited. It has little impact on the decisions of owners or investors. Therefore, the impact on the property market this year should be limited. However, as the United States continues to raise interest rates next year, P potential will continue to increase, the pressure of property market adjustment will increase, owners and investors must be psychologically prepared.