U.S. raises interest rates | Interest rate magic hits 8 million Hong Kong buildings

Recently, the market conditions for new properties have turned hot, and some buyers boasted that "the interest rate hike will be tens of thousands, and the property price will not stop rising by one liter", which has become a popular story.

Having said that, with the general upward trend in external interest rates, the Federal Reserve has raised interest rates by half a percentage point this week. It is only a matter of time before the Hong Kong interest rate hike will increase the cost of housing supply for Hong Kong people.

In the end, will the additional contribution burden brought about by the interest rate hike be "one thousand and several thousand", or "one hundred and several hundred thousand"?

The U.S. Federal Reserve announced on Thursday that it would raise interest rates by 0.5%, and the Federal Reserve interest rate range was between 0.75% and 1%.

The Hong Kong Monetary Authority also immediately raised the base rate to 1.25% according to the preset formula.

However, many large local banks have not raised their prime rate. Large banks such as HSBC, BOC, and Standard Chartered have maintained their prime rate at 5%.

Although the prime interest rate remains unchanged, it does not mean that the cost of housing supply for Hong Kong people will not increase in the future. The reason is that 97% of Hong Kong people use the H mortgage for housing. As the interest rate rises, it is expected that the cost of housing supply will increase.

As the Hong Kong dollar interest rate rises, it is expected that the cost of housing supply will increase.

(Photo by Yu Junliang)

The Hong Kong-US interest rate spread rose to nearly 0.7%, and Hibor has pressure to rise

The HKMA explained earlier that when the Hong Kong-US interest rate spread widens, the outflow of funds from the Hong Kong dollar will weaken the exchange rate. If the Hong Kong exchange rate hits the weak-side convertibility guarantee, the HKMA will buy the Hong Kong dollar and sell the US dollar, reducing the balance of the banking system and shrinking the monetary base. This pushes up interest rates and stabilizes the exchange rate.

As the Federal Reserve raised interest rates by 0.75% in two interest rate meetings, the Hong Kong-US interest rate gap is expected to continue to widen.

The latest U.S. 3-month Libor and Hong Kong 3-month Hibor interest rates differ by 0.67%, which has widened significantly from the negative level at the beginning of the year and continues to hit a 3-year high.

Zeng Jizhi, Head of Financial Markets at Standard Chartered in Hong Kong and the Greater Bay Area, predicts that when the Hong Kong-US interest rate gap widens to nearly 1%, investors will be more active in selling Hong Kong dollars to buy US dollars, which will increase the pressure on capital and thus force Hong Kong interest rates to rise. faster.

He predicts that when the balance of Hong Kong's banking system falls back to the level of more than 200 billion yuan, it is expected that the short-term interest rate increase in Hong Kong will further accelerate.

There is still a gap of 1% from the capped interest rate, and the cost of housing is rising sharply

According to the Association of Banks, the one-month interbank interest rate related to housing mortgages by Hong Kong people was maintained at the latest level of 0.19018%.

Based on the generally adopted level of H plus 1.3%, the current real estate interest rate for Hong Kong people remains roughly at 1.5%, which is still 1% away from the general cap rate of 2.5%.

After the Federal Reserve announced the interest rate hike, the President of the HKMA, Yu Weiwen, once again reminded the Hong Kong dollar interest rate to be gradually raised, reminding the public to carefully manage interest rate risk when deciding to buy a home or undertake a mortgage.

Cao Deming, chief vice president of Meridian Mortgage Referral, predicts that Hibor will rise to 0.6% at the end of the second quarter, and there is a chance to challenge 0.8%.

As a matter of fact, the current interest rate for properties is low, and there is ample room for upward adjustment. If H is increased from the current level of 1.5% to the capped interest rate of 2.5%, there is already a full 1% room for upward adjustment. The additional interest costs involved are not cheap. , not to mention the possibility that banks may raise the prime rate to increase the cap rate in the future.

Take the purchase of a new unit of 8 million yuan as an example, assuming that the owner undertakes 90% of the mortgage, the loan amount is 7.2 million yuan, and the repayment period is 30 years.

Based on the current real interest rate of 1.5%, the monthly repayment amount is 24,849 yuan, and the total interest expense for the whole period is 1.745 million yuan.

Once the Hong Kong dollar interest rate rises, reaching the general cap rate of 2.5%, the monthly repayment amount will increase by 3,600 yuan to 28,449 yuan, and the total interest expense for the whole period will be 3.04 million yuan, an increase of nearly 1.3 million yuan.

The market expects that when the US interest rate rises to 2.5%, local banks may raise the prime rate by 0.125%.

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If the US interest rate rises above 2.5% Hong Kong silver or with P

Although the current balance of the banking system is sufficient, which is close to 340 billion yuan, there is no need for banks to raise the prime interest rate in the short term, but it cannot be ruled out that it will happen within this year.

Xie Jiaxi, an economist at the Economic Research Department of DBS Bank (Hong Kong), pointed out that referring to the last interest rate hike cycle, when the US interest rate rises to around 2.5% and the balance of the Hong Kong banking system falls to nearly 50 billion yuan, Hong Kong will be forced to follow the US to raise interest rates.

He expects that the US interest rate will rise to around 2.5% by the end of this year, and the banks in Hong Kong will also raise the prime interest rate by 0.125%.

Meridian Mortgage Cao Deming also said that if the balance of Hong Kong's banking system falls below 100 billion yuan, there will be a chance to consider raising interest rates with the United States.

In other words, as the prime interest rate rises, the capped interest rate of H will also increase, and the gap between the current real interest rate and the current real interest rate may be more than 1%.

Zhuang Jinhui, chief executive of Star Valley Mortgage, said that if owners want to reduce the cost of housing, they can consider remortgaging to earn cash rebates, or switch to fixed-rate mortgages.

Landlords may consider a fixed rate mortgage or remortgage to earn rebates

Zhuang Jinhui, CEO of Star Valley Mortgage Referral, said that with reference to the last interest rate hike cycle, when the US interest rate rose above 2%, Hong Kong banks only raised the prime interest rate once, by only 0.125%, which had a limited impact on the cost of property owners.

In recent years, most of the mortgage plans offered by banks are H+1.3%, with a capped interest rate of P-2.5%.

Zhuang Jinhui estimated that even if H press raises the cap rate, it is expected that the bank will not adjust the relevant plans and maintain H+1.3% and P-2.5%.

If the owner wants to reduce the cost of building a property, he can consider remortgaging to earn cash rebate, or switch to a fixed-rate mortgage.

However, Zhuang Jinhui reminded that the current 10-year fixed interest rate has increased to 2.45%, which is not far from the capped interest rate of 2.5%, and believes that the attractiveness is limited.