Central Plains Mortgage: Expects Hong Kong's best lending rate to complete interest rate cuts next year, with the mortgage interest rate dropping to 3.25%

According to the Zhitong Finance APP, the Federal Reserve has reduced interest rates by 0.25% as expected after its meeting, marking the third rate cut this year. Since September, U.S. interest rates have cumulatively decreased by 1%. HSBC and BOC HONG KONG have successively announced a reduction in the prime rate by 0.125% to 5.25%, and it is expected that other banks will follow suit.

Wang Meifeng, Managing Director of Centaline Mortgage, pointed out that despite the recent rise in interbank lending rates, with the one-month Hong Kong dollar HIBOR hovering around 4%, banks have still decided to continue reducing the prime rate (Hong Kong prime rate). After the rate cut, the annual mortgage interest has cumulatively decreased by 0.625%, with the market mortgage rate gradually dropping from 4.125% in September to 3.5%. For an average mortgage amount of HKD 4.5 million, the monthly payment has decreased by HKD 1,600 (a reduction of 7.3%), further alleviating the payment burden for property buyers and those repaying mortgages.

She also mentioned that based on the last interest rate hike cycle, the increase in Hong Kong's prime rate was less than that of the U.S. rates. While U.S. rates increased by over 5%, Hong Kong's prime rate only rose by 0.875%. Therefore, the Hong Kong prime rate will not necessarily decrease with every U.S. rate cut, and this rate cut cycle will see a significantly smaller reduction in Hong Kong's prime rate compared to the U.S. Wang Meifeng expects that after banks accelerate the reduction of the prime rate by 0.625% this year, there will still be a remaining reduction of 0.25% next year. As the U.S. continues to cut rates, the Hong Kong prime rate is expected to further decrease by 0.25%, completing the rate cut cycle, at which point the Hong Kong mortgage rate will drop to 3.25%.

Wang Meifeng pointed out that after the Hong Kong prime rate completes its rate cut cycle, whether the Hong Kong mortgage rate will further decline will depend on the extent of the drop in HIBOR. According to the current capped interest rate level for Hong Kong mortgages, the one-month HIBOR needs to fall below 2.2% for the mortgage rate to drop below the capped interest rate. Currently, the HIBOR is still significantly above 2.2%, hovering around 4.5%. However, if the HIBOR can gradually decline next year, the reduction in banks' funding costs may prompt banks to lower the interest rates on mortgage plans, leading to further decreases in market mortgage rates. In the last interest rate hike cycle, the actual increase in mortgage rates was a total of 2.625%, not only due to banks raising the prime rate but also due to the rise in HIBOR and banks adjusting mortgage plan interest rates. Therefore, the overall changes in mortgage rates next year will be adjusted according to the prime rate reduction, the trend of HIBOR decline, and changes in banks' mortgage plan interest rates.

Regarding the property market, Wang Meifeng stated that the market has started to recover since the rate cuts in September, further stimulated by several favorable factors, including the full relaxation of mortgage policies in October. Although the market has become more cautious due to news of Donald Trump's election and fluctuations in the financial market in November, the continuation of the rate cut period next year, the stabilization of the local economic recovery, the full relaxation of mortgage policies, and the activation of the local economy through multiple transactions are expected to support the gradual recovery of the property market, with further improvements anticipated next year.

She also noted that although the pace of U.S. rate cuts will slow next year, Hong Kong banks have already accelerated the reduction of the prime rate by 0.625% this year, easing the payment burden for property buyers and those repaying mortgages ahead of time. Additionally, the average rental yield has risen to 3.5% this year, with some exceeding 4%. Compared to the market mortgage rate of 3.5%, there are increasing cases where the cost of buying is lower than renting, leading more housing demand individuals to prefer buying over renting. It is also expected that the rate cut period will continue until 2027, which will help sustain favorable factors supporting the property market Regarding U.S. interest rates, Wang Meifeng pointed out that according to the U.S. interest rate statement, after a cumulative 1% rate cut this year, the pace of rate cuts will slow down next year, but the rate cut cycle will continue until 2027. Due to market consensus that the economic policies of the new U.S. president may hinder the speed of inflation decline, the pace of rate cuts in the U.S. may slow down next year; however, after the last period of aggressive rate hikes, U.S. interest rates are currently at the early stage of the rate cut cycle and remain at a high level. If high rates persist, it will impact the current economy. It is expected that the U.S. rate cut period will continue, and high interest rates will still require adjustment, but the pace of rate cuts will be influenced by inflation trends, employment, and changes in economic data. It is anticipated that further rate cuts in the U.S. next year could reach 0.5% to 0.75%, with U.S. interest rates expected to fall below 4%