Hong Kong mortgage frenzy sees banks go big on cash handouts

HONG KONG – 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 per cent last year to as much as 2.6 per cent currently, the highest in more than 17 years, according to Centaline Mortgage Broker data.

Banks such as HSBC Holdings and Bank of China (Hong Kong), or BOCHK, are using the incentive as a way to draw clients while property transactions stay subdued in the city’s real estate market, which is still

reeling from an exodus of residents in 2022

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 is super competitive,” said Mr Leland Sun, founder of Pan Asian Mortgage, whose Hong Kong-based firm advises home buyers. “The banks are starving for business.”

The largest lenders in the Hong Kong mortgage market include BOCHK, HSBC and Hang Seng Bank, which collectively generated more than 60 per cent of new mortgages in the first quarter of this year.

Ms Lydia Cheng, an interior designer, is shopping around for the best deal. She is looking to buy a property in Hong Kong and typically banks with HSBC, which offered her a preliminary 2.5 per cent mortgage rate and a 1 per cent cash rebate. She 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 2022.

Standard Chartered Bank’s mortgage income slumped 52 per cent during the first quarter as factors including the prime rate cap in Hong Kong “led to margin compression”, Mr Andy Halford, the bank’s chief financial officer, told analysts on a call after its quarterly results.

Still, not all customers are jumping on the highest rebate offer.

A marketing professional in her mid-30s, who wanted to be known only as Ms Leung, bought a property in Shatin for HK$10 million (S$1.7 million) earlier in 2023. She took on an HK$8 million mortgage with BOCHK, which offered a rebate of HK$120,000.

Despite being offered a higher rebate elsewhere, she chose BOCHK, in part because she felt it offered better service, she said.

Peak margins

Hong Kong emerged from recession in the first quarter as the reopening of its borders revived spending. In the meantime, bank results in recent weeks showed that the surge in interest rates have boosted margins. But lenders signalled that profit earned from higher rates may have already peaked.

As the cost of funding for banks surges, with the one-month Hong Kong Interbank Offered Rate jumping to about 4.34 per cent from 0.18 per cent a year ago, competition is intensifying. Corporate lending and trade finance have also 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 Ms Ivy Wong, managing director of Centaline Mortgage. Bloomberg