Fierce competition for new mortgage customers is driving banks in Hong Kong to offer the highest cash rebates in nearly two decades.
The deals — offered as a percentage of the principal loan amount — ramped up from about 1.3% last year to as much as 2.6% currently, the highest in over 17 years, according to Centaline Mortgage Broker data.
Banks such as HSBC Holdings Plc and Bank of China (Hong Kong) are using the incentive as a way to draw in clients, while property transactions remain subdued in the city’s real estate market that’s still reeling from an exodus of residents last year amid its zero Covid policy. Lenders are also getting squeezed as a cap on lending rates in the city crimps margins.
“In Hong Kong, it’s super competitive,” said Leland Sun, founder of Pan Asian Mortgage Co., whose Hong Kong-based firm advises homebuyers. “The banks are starving for business.”
The largest lenders in the Hong Kong mortgage market include Bank of China (Hong Kong), HSBC, and Hang Seng Bank Ltd., which collectively generated more than 60% of new mortgages in the first quarter of this year.
Read more on HSBC and Standard Chartered hiking prime rates as liquidity shrinks
Lydia Cheng, an interior designer, is shopping around for the best deal. She’s looking to buy a property in Hong Kong and typically banks with HSBC, which offered her a preliminary 2.5% mortgage rate and a 1% cash rebate. Cheng said she plans to compare rates when she buys her property and sign on with the bank offering the best rate.
In Hong Kong, most variable rate home loans have a cap based on the prime lending rate. Major lenders have raised that rate by about 75 basis points since last year.
Standard Chartered Plc’s mortgage income slumped 52% during the first quarter, as factors, including the prime rate cap in Hong Kong “led to margin compression,” Andy Halford, chief financial officer told analysts on a call after its quarterly results.
Still, not all customers are jumping on the highest rebate offer. Ms Leung, a marketing professional in the her mid-30s who bought a property in Shatin for HK$10 million ($1.28 million) earlier this year, took on a HK$8 million mortgage with Bank of China (Hong Kong), which offered a rebate of HK$120,000. Despite being offered a higher rebate elsewhere she chose Bank of China, in part because she felt they offered better service, she said.
Peak Margins
Hong Kong emerged from recession in the first quarter as the reopening of its borders revived spending. Meantime, bank results in recent weeks showed the surge in interest rates had boosted margins, however lenders signaled profit earned from higher rates may have already peaked.
As bank’s costs of funding surges — with one-month Hibor jumping to about 4.34% from 0.18% a year ago — competition is intensifying. Meantime, corporate lending and trade finance has been weak, helping to embolden the fight for new loans.
“Banks hope to win more mortgage customers, but their cost of funds has increased during the interest rate hike cycle, so banks have little room to reduce mortgage rates,” said Ivy Wong, managing director at Centaline.