Fixed-rate mortgage plan in the works

A fixed-rate mortgage loans pilot scheme has been proposed and it calls for interest rates of 2.75 to 2.95 percent for a 10-to-20-year tenure, capped at HK$10 million per loan transaction, with a total loan amount of HK$1 billion.

The pilot scheme, from the Hong Kong Mortgage Corp Ltd, is just for six months.

The plan's annual interest rate for 10 years would be 2.75 percent, for 15 years it's 2.85 percent and for 20 years 2.95 percent.

Borrowers can choose to adopt a fixed rate or a floating rate after the fixed-rate repayment period. They are not required to pass a stress test based on a 3 percent interest rate increase.

Eric Tso Tak-ming, the senior vice president at mReferral, said it would help home buyers who want stable repayments but it may not generate much excitement in a low-interest-rate environment.

The government may also launch 30-year fixed-rate mortgage loans later.

The current mortgage rate is about 2.5 percent, which is 0.45 percentage points lower than that of the 20-year loan.

Under the pilot scheme, home buyers can only benefit if Hong Kong raises the rate two times or more in the future, said Raymond Chong Kam-fai, managing director at StarPro Agency.

It is unnecessary to choose fixed-rate loans as the recent mid-to-short-term national bond yield curve is inverted, indicating that the interest rate may drop in the short term, he said.

The United States is under pressure to increase interest rates and Hong Kong will follow as the balance of the banking system is only HK$40 billion to HK$50 billion and the capital cost rises, Tso said.

More than 60 percent of respondents said the fixed-rate loan can benefit home buyers, according to a Hong Kong Property report.

About half remain confident of the government not waiving the cooling measures on property.

Withdrawal of the property cooling measures is not necessary at the moment, a government source said.

The residential market has been quiet since June. Transactions and prices dropped but it only lasted for few months. The source said more time is needed to assess the situation.

Tso said the government may withdraw the cooling measures after six months to a year if prices continue to fall.

winnie.lee@singtaonewscorp.com