Mortgage referral service provider mReferral said yesterday it expects the mortgage loan spread to shrink further in 2009.

The company also said the imminent mortgage hike will dampen buyers' initiatives to renew their properties. And it will drag the overall mortgage value down from HK$189 billion this year to HK$173 billion in 2009.

Although the US Fed announced an interest rate cut of 0.75 percent on Dec 17, mReferral chief economic analyst Sharmanine Lau said that local lenders are unlikely to follow suit, noting mortgage rate may even see a reverse trend next year.

Although the average mortgage rate between May 2000 and October 2008 stood at prime rate (P) minus 2.53 percent, Lau said that the spread will narrow down to move from minus to plus next year.

"The market condition doesn't have room for rate reduction by local lenders because they need to hike their mortgage rates to counter the climbing lending risks," she said.

Effective mortgage rate climbed up from 2.75 percent to the current 4 percent this year. It significantly increases the burden for homebuyers in paying off their mortgages. The monthly payment will increase by HK$1,000 for a HK$1 million borrower if the rate rises from P minus 3 percent to P minus 1 percent.

Midland Holdings senior executive director Albert Wong was worried that the rate addition will dampen homebuyers' willingness to renew their flats.

Homebuyers who intention to change a new flat account for a considerable proportion in the mortgage market. There were about 760,000 mortgage applications over the past eight years, about 60 percent of which have potentials for flat changing, said Wong.

He believed that flats with a price tag of HK$3 million or above will be hit the hardest by the rate hike, but it is difficult to evaluate the impact in terms of transaction at this stage.

"With the stellar performance of the property market in the first half, it believes that the whole-year overall mortgage value for 2008 will advance to HK$189 billion from HK$170 billion in 2007," said Lau. "But the value might shrink to HK$173 billion next year with the uncertainty of the interest condition."

Wong urged local lenders not to adopt one-size-fits-all interest policy in handling flat-changing cases. "They (lenders) should give the second-home buyers some leeway to use an old mortgage rate, or use a new rate for part of their mortgages."

(HK Edition 12/19/2008 page2)