Li Jia Ge's Huang Yongxin: The future of Hong Kong banks' P interest rate cuts is limited, and the effect of mortgage interest savings still depends on the direction of interbank rates

The Federal Reserve announced a rate cut of 0.25 basis points, and the three major note-issuing banks in Hong Kong, including HSBC, BOC HONG KONG (02388.HK), and Standard Chartered, immediately followed suit, announcing a reduction in the prime rate by 0.125 basis points, lowering it to 5.00 and 5.25 basis points respectively, marking the lowest level in nearly three years since November 2022. It is expected that other major banks will also follow suit in due course.

Wong Wing-hin, Managing Director of Lijia Mortgage Agency, stated that the unanimous follow-up by Hong Kong banks to the U.S. interest rate cut indicates a trend towards a more relaxed funding situation in the banking system. It is worth noting that despite the reduction in the prime rate, the one-month Hong Kong Interbank Offered Rate (HIBOR) related to mortgage loans remains above 4 basis points, maintaining a gap of over 100 basis points from U.S. interest rates. This situation reflects that local funding costs still face certain pressures, which may affect the pace of future rate cuts. Given that the P rate is currently at a relatively low level and banks need to maintain a basic interest margin, even if the U.S. cuts rates again in the future, the room for Hong Kong banks to lower the P rate will be quite limited.

She indicated that under the new situation where the P rate has bottomed out, Wong Wing-hin expects market focus to shift from benchmark rates to individual offers provided by banks. In the coming months, the bank anticipates that banks will compete for mortgage customers through various means, including offering higher cash rebates, optimizing the interest margin of H mortgage plans, and providing additional interest rate discounts for specific customer groups.

She added that some banks have recently actively adjusted their strategies to offer more favorable mortgage plans to professionals and high-income clients compared to standard rates. These differentiated offers will become key considerations for customers when choosing mortgage plans.

Wong Wing-hin also mentioned that for homeowners using H mortgage plans, the actual savings will depend on the extent of the decline in HIBOR. If HIBOR can follow U.S. interest rates downwards, H mortgage owners will enjoy double benefits. However, if HIBOR remains high, the actual savings may not meet expectations. Homeowners are advised to closely monitor HIBOR trends and adjust their financial arrangements in a timely manner.

With the cap on interest rates lowered, Wong Wing-hin expects the refinancing market to significantly warm up. Recently, banks have actively launched refinancing offers, and with interest rates declining, it is expected that refinancing applications in the next quarter will increase by about 20% compared to the same period last year. In addition to obtaining more favorable interest rates, some banks are offering cash rebates of up to 1.4% of the loan amount, creating a rare opportunity for refinancing.

In this environment, Wong Wing-hin advises prospective buyers and homeowners to carefully compare the mortgage conditions of different banks. In addition to focusing on the prime rate, they should also understand the detailed terms of the H mortgage plan, especially the calculation method for the cap on interest rates and the actual value of cash rebates. At the same time, they should pay attention to the differences in mortgage policies for specific property types among individual banks.

Regarding property purchase decisions, Wong Wing-hin emphasized the need to combine personal financial situations with market trends. Although the interest rate environment has improved, prospective buyers still need to prudently assess their repayment capabilities. It is recommended to refer to the bank's stress test requirements to ensure that they can still afford repayments when interest rates rise. Additionally, they should consider career development prospects and income stability to make long-term property planning