Centaline Mortgage Wang Meifeng: After adding P, the ratio of contribution to income is still healthy, calling for relaxation of stress test conditions

The US Federal Reserve announced the results of its sixth interest rate meeting in 2022 in the early hours of this morning in Hong Kong, announcing an increase of the federal funds rate by 0.75% to 3-3.25%.

Wang Meifeng, managing director of Centaline Mortgage, said that large banks have just announced an increase in the prime interest rate (P) by 0.125%, and HSBC's P has risen from 5% to 5.125%, starting the four-year interest rate hike cycle of Hong Kong P.

It is expected that other banks will follow suit and increase P, and the market interest rate will increase by 0.125% to a range of 2.625% to 2.725%. Based on the 30-year term, the monthly payment of property owners will increase by 1.7%.

She pointed out that the cumulative interest rate hike in the United States this year has reached 3%, and this time the bank has raised interest rates by only 0.125%, which is milder than market expectations.

Wang Meifeng said that the rate of increase of the prime interest rate P by the bank is quite moderate. Since the rate is 0.125%, which is less than the market expectation of 0.25%, whether it will need to increase the P rate in the future depends on the future interest rate increase.

During the year, the interest rate further followed the rise of US interest rates, and it cannot be ruled out that the additional P situation such as the rate hike cycle from 2004 to 2006 will appear again.

(At the beginning of May 2005, the US raised interest rates by 0.25%. At that time, Hong Kong P did not immediately follow the interest rate hike in March, but the 1-month interest rate gradually rose from 1.8% in early May to 3% on May 23. The bank adds P up to 0.5%.)

Moderate increases could deliver positive messages

As the U.S. still has a good chance of continuing to raise interest rates during the rest of the year, the Fed’s interest rate dot plot shows that the U.S. federal funds rate will rise above 4% by the end of this year, which is higher than the mid-year forecast of 3.4%. In response to the problem of high inflation, the rate hike will be accelerated. The Hong Kong-US interest rate gap will widen again during the year, which will lead to a further decline in bank balances and a further increase in the interbank interest rate. This will lead to a greater chance that Hong Kong P will increase again during the year. It is expected that Hong Kong P will not increase much this year. at 0.5 centimeters.

At the end of the year, the interest rate will be at a low level of about 3%; the average interest rate in the past 30 years is about 4%, and the average interest rate in the ten years before the loose monetary policy (QE) era, i.e. before 2008, was 5%, which is still lower than the long-term average. Level.

Wang Meifeng said that in recent months, the bank has raised the cap rate of the new H-press and the P-mark, and before adding P, the new-build rate is mainly between 2.5% and 2.6% (some are 2.75%). It is expected that banks will follow the increase of P After 0.125%, the market adjusted to 2.625% to 2.725% according to the interest rate.

After the bank raises the prime interest rate by 0.125%, the monthly payment will increase by 1.7% based on the 30-year repayment period, and the impact on the payment burden will be slight.

Taking the average mortgage amount of about RMB 5 million as an example, with a 30-year term, and the interest rate is increased from 2.5% to 2.625%, the monthly payment will increase by RMB 327 to RMB 20,083 (an increase of 1.7%).

For every 1 million mortgages and a 30-year term, the monthly payment will increase by $66 (an increase of 1.7%).

Monthly contributions will increase by 1.7%

Wang Meifeng pointed out that according to the "Semi-Annual Report on Monetary and Financial Stability" issued by the HKMA in March, the contribution-to-income ratio (DSR) of property owners was at a low level of 36% (the market rate in March was about 1.57%) %), with the current market interest rate rising to 2.625% after adding P, the contribution-to-income ratio has risen to 41.1%, which is still a healthy low level, reflecting the high repayment ability of home buyers and investors in the face of rising interest rates. The defensive power is also quite high, and the real impact of interest rate hikes is not significant.

Wang Meifeng pointed out that the current mortgage payment stress test is calculated by adding 3% to the market interest rate. This is based on the assumption that the interest rate will increase by 3% to prepare a defensive force for borrowers, which has effectively reduced credit risk over the years. Forced to cope with the rate hike cycle.

However, when Hong Kong entered the interest rate hike cycle and the interest rate increased accordingly, the "stress test" originally assumed that the rate of interest rate hike should be reduced to be more reasonable, otherwise it would be more difficult for borrowers to pass the "stress test"; 0.125%, the minimum income requirement needs to be increased by about 1.7% to pass the "stress test".

If interest rates are raised further in the future, it will become more difficult to pass the "stress test".

Furthermore, the market expects that the increase in US interest rates will slow down next year, and the current rate hike cycle may peak next year. It is believed that Hong Kong interest rates will not follow the full increase. Therefore, the cumulative increase in Hong Kong P and the assumed 3% increase in the pressure test are somewhat different. If there is a gap, the pressure test should be relaxed under conditions.

Standard Chartered: The Bank of Hong Kong has the opportunity to accumulate P interest rate of 0.5% within the year. Property prices will slowly decline in the next few months. The United States will raise interest rates | There is no cliff-like adjustment risk in the property market. US interest rate hike | HSBC is the first to add raw materials in P, which will shock the property market.