The Hong Kong property market is preparing for the potential effects of an anticipated interest rate hike by the US Federal Reserve, following remarks by Fed Chairman Kevin Warsh at the Jackson Hole economic symposium last week. Market tools tracking Fed funds futures now indicate a roughly 60 percent chance of a quarter-percentage-point increase in the Fed's target rate this month, doubling previous expectations.
Despite this, local experts believe Hong Kong banks are unlikely to raise their prime lending rates significantly in the near term. Global property consultancy Knight Frank projected that the prime rate—the benchmark interest rate charged by Hong Kong banks to commercial borrowers—will either remain steady or increase by no more than one-eighth of a percentage point. The prime rate is crucial for mortgage pricing and borrowing costs in Hong Kong.
Under the Linked Exchange Rate System, which has pegged the Hong Kong dollar to the US dollar since 1983, Hong Kong’s monetary policy tends to move in tandem with the Federal Reserve. However, commercial banks retain discretion in determining the timing and extent of adjustments to their prime and savings rates. Esther Liu, director and head of Greater China research and consultancy at Knight Frank, noted that banks generally wait for consecutive Fed rate hikes or a sharp rise in funding costs before increasing prime rates. She added that because the prime rate directly influences the mortgage rate cap—currently set at 3.25 percent—mortgage-related borrowing costs are expected to remain broadly stable, even if some fixed mortgage rates rise by about 0.2 percentage points to 2.93 percent.
Recent data from the Hong Kong Monetary Authority’s residential mortgage survey revealed that the share of newly approved fixed-rate mortgages climbed to 34.1 percent in July, marking an eight-year high and a 9 percentage point rise from June. This shift reflects growing market uncertainty, as potential interest rate increases in the US and concerns about local banks following suit have pushed more homebuyers toward fixed-rate mortgage options.
Eric Tso, chief vice-president at mReferral Mortgage Brokerage Services, linked the increased preference for fixed-rate loans to these market expectations, while Raymond Chong, CEO and founder of Star Pro Agency, pointed to aggressive marketing campaigns encouraging borrowers to secure low interest rates ahead of anticipated hikes. Chong noted that fixed-rate mortgages may have accounted for more than 40 percent of new mortgage applications in the previous month.
Among the banks offering fixed-rate mortgage products in Hong Kong, HSBC has been the most active, extending its application deadline through the end of the year. HSBC recently raised its fixed interest rate for new mortgages by 0.2 percentage points to 2.93 percent, signaling that banks are mindful of rising funding costs. The one-month Hong Kong Interbank Offered Rate (Hibor) rose to 2.85 percent on Monday—a near two-month high—further indicating increased capital costs faced by lenders providing mortgage financing.