Hong Kong banks’ unexpected prime rate cut on Friday will lower funding costs and bring more buyers into the market, with analysts expecting home prices in the city to bottom out “in the short term”.
BOCHK, HSBC and its subsidiary Hang Seng Bank will trim their prime rate by a quarter point to 5.375 per cent from Monday, according to separate statements. Standard Chartered, Bank of East Asia, and ICBC (Asia), the local unit of China’s biggest lender, will cut their prime rate to 5.625 per cent.
The banks’ moves were unexpected, as Hong Kong banks normally only cut their rates once for every two to three reductions from the US, said Raymond Cheng, a managing director at CGS International Securities in Hong Kong.
“The latest cut means that the mortgage rate in Hong Kong will also be cut by 25 basis points to 3.625 per cent from 3.875 per cent.”
In Hong Kong, many mortgages are structured as prime-based loans, with interest rates set at a margin above or below the bank’s prime rate. When a bank lowers the prime rate, the interest rate for prime-linked mortgages also decreases, helping to reduce homebuyers’ monthly payments and overall financing costs.
