Fixed-rate deals offered to ease rate-rise fears

HONG KONG: Midland Holdings and its mortgage broker associate mReferral Mortgage Brokerage Services have lined up banks to offer clients a fixed mortgage rate plan of as low as 2.3%, as fears of interest rate rises dent buying interest in the secondary market.

It comes after transaction volumes over the four-day Easter break recorded a year-on-year 44% fall to 110 units at the 35 largest residential estates tracked by Midland Realty, mReferral's sister company.

"The potential for a rise in interest rates is greater than a decline later this year. Homebuyers could reduce their risk as a fixed-rate plan will help lock up their interest expenses," said Albert Wong, deputy chairman at Midland Holdings.

The fixed-rate plan, with immediate effect, applies to buyers in the primary and secondary residential markets on a first-come, first-served basis. Successful applicants will be charged the fixed rate for the first 36 months, followed by prime minus 3.1%, or Hibor plus 0.8%. Under the same plan, other banks have set a fixed rate of 2.38%.

According to mReferral's data, fixed-rate plans accounted for just 0.2% of the market while the majority opted for floating-rate plans, currently at about 2%.

Wong attributed the low penetration due to the undeveloped bond market — which fixed-rate mortgages are closely tied with — in Hong Kong.

Unlike the developed bond market in the United States, according to the Federal Housing Finance Agency, 30-year fixed rate mortgages accounted for more than 77% of the market last year.

Wong said the average mortgage rates were 6.83% between 1990 and 2009 compared to the current level of close to 2.2%.

At present, a person who borrows HK$2 million (RM766,499) at a 2.2% interest rate will pay HK$10,308 each month for 20 years, half of the HK$20,000 each month when mortgage rates stood at 11.25% in 1998.

A telephone survey conducted by mReferral indicated 92% of the 227 respondents believed mortgage rates would rise this year, and 79% said they would consider a fixed-rate plan as it could reduce the risk.

In contrast to the slow sales in the secondary market, a strong performance was recorded in the primary market during the Easter break.

Developers accelerated their launches by offering additional discounts, with 522 units sold over the four-day holiday, compared with 456 units sold over Easter 2010.

"While the absorption of pent-up demand has affected secondary transaction volume, we also think the discrepancy in sales volume between the primary and secondary markets is due to secondary homebuyers having greater difficulty obtaining mortgages at attractive terms, especially for investment purposes," said Lee Wee Liat, regional head of property at Samsung Securities. — SCMP