Hong Kong Mortgage Rates May Start Rising Mid-2010, HSBC Says

Oct. 7 (Bloomberg) -- Hong Kong’s mortgage rates, at their lowest in at least 19 years, may begin rising in the middle of next year, according to the head of the city’s second-biggest home-loan provider.

Increasing mortgage rates “will be quite difficult in the next few months because of what’s happened in the U.S.,” Peter Wong, head of HSBC Holdings Plc’s Hong Kong and China unit, said in an interview with Bloomberg TV. “It’ll go up gradually, probably sometime during the middle of next year.”

Lenders including Bank of East Asia Ltd. and Standard Chartered Plc are offering home-buyers borrowing costs as low as 3.25 percentage points less than the benchmark rate for mortgages. Such “intense price competition” isn’t sustainable and may erode the industry’s profit margins and increase risks, the city’s central bank said last month.

Hong Kong banks’ prime rates are currently about 475 to 500 basis points above the Hong Kong Interbank Offered Rate, compared with an average spread of about 390 basis points over the past five years, according to the Hong Kong Monetary Authority. A basis point is 0.01 percentage point.

The Asian city’s interest rates normally follow that of the U.S. as the two currencies are pegged. Federal Reserve Chairman Ben S. Bernanke last week said joblessness would remain above 9 percent through next year, indicating the central bank wouldn’t move quickly to raise rates and drain cash from the economy.

The decline in Hong Kong mortgage rates has spurred a recovery in the housing market. Hong Kong home prices are up 26 percent this year, erasing losses posted between the demise of Lehman Brothers Holdings Inc. on Sept. 15, 2008, and the end of last year, according to the weekly Centa-City Leading Index.

HSBC has the second-biggest market share for mortgages in the city, accounting for 19.3 percent as of September, data compiled by Hong Kong-based mReferral Mortgage Brokerage Services show. It trails BOC Hong Kong Holdings Ltd., which has 20.6 percent of the market. Hang Seng Bank Ltd., a unit of HSBC, is third with 10.4 percent.