An interest rate cut by 1% can save HKD1,500 monthly for borrowing HKD3 million.
The Fed suddenly cut interest rates by another 1%, and the US interest rate returned to the "zero-interest era" during the 2008 financial tsunami. Industry analysis indicates that funds will tend to flood into the property market and the stock market under the depreciation of money, and it is expected to help ease the decline in the property market under the current economic recession and COVID-19 epidemic. If Hong Kong also follows a 1% interest rate cut in the future, the monthly cost will save about HKD1,500, base on a loan of HKD3 million with prevailing actual interest rate of 2.5% and 30 years.
Journalist Ngan LunLok
The COVID-19 epidemic has spread globally, and the United States has cumulatively cut interest rates by 1.5% within half a month to deal with the economic impact of the epidemic. Although Hong Kong banks have not followed the US to cut interest rates twice in a row, the industry expects that it is only a matter of time before Hong Kong's interest rate cuts. Hong Kong Interbank Offered Rate (HIBOR) may decline under 1% in the future. The U.S. federal funds rate had similarly dropped to zero after the 2008 financial tsunami and had maintained at 0%-0.25% from the end of December 2008 to mid-December 2015. The monthly Hong Kong HIBOR related to property mortgage had fallen to a level between 0.07% and 0.36% during the period. It is expected that the sharp decline in US interest rates will further push down the Hong Kong HIBOR.
The world will enter a trend of Quantitative Easing.
Wong Leung-Heung, the Managing Director of Finance and Marketing Department of DBS Hong Kong predicts that the United States may maintain zero interest rates for a long period, and the world will enter a trend of Quantitative Easing. It is only a matter of time before Hong Kong lowers its Prime Rate(P). But the time of interest rate cut will depend on the flow of funds. If funds flow into the Hong Kong dollar and increase the balance of the banking system, it may drive Hong Kong to reduce interest rates. In contrast, the Hong Kong interest rate will still be higher than the US interest rate, if the Hong Kong dollar does not touch a firm convertibility undertaking. He emphasizes that the policies of all countries will not be synchronized even entering the "zero-interest era," and the bubble that may be caused by easing policies needs to be measured.
Cho Tak-Ming, the Chief Vice President of mReferral Mortgage Brokerage Services, believes that the possibility to cut interest rates again is small. Because the Fed had cut interest rates twice in less than two weeks, making the federal fund rate back to the super-low level during 2008-2015 and decreasing the base rate to nearly 0%. But it does not rule out that a larger-scale quantitative easing will be carried out again. Yesterday, the monthly HIBOR was reported at 1.14%, which will continue to be about 2.5% below the planned upper limit of HIBOR. It is expected that after the two U.S. interest rate cuts, HIBOR may continue to reduce under 1%, increasing the number of customers who choose the HIBOR.
Hong Kong Prime Rate P is expected to return to 5%-5.25%.
Wong Mei-Fung, the Managing Director of Centaline Mortgage, expresses that the Credit Interest also dropped to near zero when Hong Kong Prime Rate has been declined since last November until current to 5%. The current bank balance is about HKD50 billion, and it is believed Hong Kong Credit Interest would not decrease to a negative number. The bank may not unilaterally cut the Prime Rate. However, there are currently four banks' Prime Rates, which are 5%, 5.25%, 5.375%, and 5.55%. The reduction in HIBOR may make individual banks conditionally adjust the Prime Rate higher than the market level to 5%-5.25%.
If Hong Kong follows interest rate cuts in the future, it will help reduce the mortgage burden on home buyers, reduce corporate borrowing costs, and mitigate the impact of the local epidemic. Base on a loan amount of HKD1 million in a 30-year repayment period, the monthly installment payment for P mortgage and H mortgage will decrease by HKD250 monthly if the interest rate reduction is 0.5%. And the monthly cost saved will up to HKD500 if Hong Kong banks follow the US interest rate reduction of 1%. In other words, a person borrowing HKD3 million to buy the first house can save up to HKD1,500 per month.
The property market is warming up and waiting for the end of the epidemic.
Cho Tak-Ming believes that, in recent months, Hong Kong has introduced several measures to alleviate the freeze in the property market and assist homebuyers in their relief efforts. They include the introduction of "repayment of interest do not cover the principal" plan, fixed-rate mortgage loans, and other programs. Plus, there is a possibility for Hong Kong Hibor's decrease in the future. So, it is believed the measures would help relieve the economic market and the housing market.
However, he expects that prospective home buyers will remain a wait-and-see attitude under the current epidemic situation. And it is believed that their house purchasing intentions would rise after the epidemic is improved.
