Hong Kong lenders are expected to push mortgage rates up further next year amid tightened liquidity in the market, a move that may further weigh on property market sentiment, analysts said on Tuesday.

Major mortgage loan providers have just begun the sixth round of mortgage rate hikes this year since March. Bank of China (Hong Kong) raised its Hibor-linked and prime-linked mortgage rates by 0.5 percent on Wednesday. The city's fourth-largest mortgage loan provider, Standard Chartered, hiked its mortgage loan rates by 0.5 percent on Nov 21.

Loan analysts believe that rates in 2012 will continue to rise to a "normalized" level of 3 to 4 percent in the current economic environment.

"The cost of funding for banks is generally rising due to an uncertain global economic environment on the back of a fragile US economic recovery and the ongoing European debt crisis," said Sharmaine Lau, an economist at mReferral. "With mortgage demand being curbed by the government's tightening policy; local banks will raise mortgage rates gradually to strike a balance between risk and reward."

According to mReferral data, the current effective mortgage loan rate in the city rose to 2.44 percent in October, the highest in 32 months. The mortgage service provider predicted that the total amount of mortgage loans drawn will total HK$228 billion in 2011, down nearly 29 percent from the HK$320 billion in 2010.

Property analysts cautioned that the gradual hike in local mortgage rates may act to dampen local home prices further in 2012.

"Demand will be curtailed as those who want to trade up from a smaller home to a larger one will find that their financing costs have shot up," said Patrick Chow, head of research at Ricacorp Properties. "The number of property transactions will slump and in turn push local home prices down further."

Chow predicted that the current round of mortgage rate hikes will send local home prices 10 percent lower in 2012. If the European debt crisis turns out to be more contagious than expected, they may slump even further.

Fuelled by record-low interest rates, tight flat supply and an influx of mainland buyers, the city's home prices have surged nearly 70 percent since 2009. The Hong Kong government introduced a special stamp duty and tightened mortgage loan underwriting standards in the past year to contain soaring local home prices.

oswald@chinadailyhk.com

China Daily

(HK Edition 12/02/2011 page2)