Hong Kong Mortgage Rule May Boost Rates, Standard Chartered Says

Hong Kong banks may increase the interest rates they charge on mortgages as the city’s new risk rule pushes up funding costs, said Benjamin Hung, chief executive officer for the city at Standard Chartered Plc.

The Hong Kong Monetary Authority on Feb. 22 told banks to set the risk weighting for new residential mortgages at a minimum of 15 percent to ensure lenders’ capital cushions are deep enough. The measure will raise the home loan funding cost at Standard Chartered by 20 to 25 basis points, Hung said today.

“The new measure has led to higher costs for banks’ new mortgage business,” Hung told reporters in Hong Kong today. “The higher funding cost will inevitably be passed on. It’s just a matter of time.”

Since taking office in July, Hong Kong Chief Executive Leung Chun-ying has added property taxes, favored local permanent residents over foreigners, tightened mortgage rules and increased supply after home prices doubled in the past four years. Standard Chartered ranked fourth in the city’s home loan market last month with a 13 percent share, according to Hong Kong-based mReferral Mortgage Brokerage Services.

Growth in the bank’s Hong Kong mortgage loan book may slow to less than 10 percent this year, Mary Huen, head of consumer banking for Hong Kong, said today. Residential mortgages at the Hong Kong unit grew 11 percent last year to $21.4 billion. The lender assigned a risk weighting of less than 10 percent to home loans before the recent rule change, Huen said.

In addition to the risk-weighting floor on home loans, Hong Kong doubled the sales tax on property costing more than HK$2 million and tightened the stress-test requirement on mortgage applicants as it continues trying to cool the real estate market, Financial Secretary John Tsang and Hong Kong Monetary Authority Chief Executive Norman Chan said on Feb. 22.

Bubble Risk

The latest curbs have slowed down the property market, Nixon Chan, head of retail banking and wealth management at Hang Seng Bank Ltd., said this week. The risk of a property market bubble has increased even after the government on Oct. 26 introduced new taxes targeted at non-local home buyers and increased a resale tax on residential transactions.

The value of new residential mortgage loans drawn in Hong Kong declined 16 percent to HK$15.9 billion in January, the second monthly drop after an 11 percent decrease in December, monetary authority figures show.