Knight Frank: Hong Kong Prime Rate Rise

Expectations for a US interest rate increase have doubled following comments from the Federal Reserve chair. In Hong Kong, however, global property consultancy Knight Frank says the likelihood of note-issuing banks raising the prime rate soon remains low.

Knight Frank projects the prime rate will either stay the same or increase by a maximum of one-eighth of a percentage point. The firm's assessment came in a news release following the Fed chair's remarks at the Jackson Hole economic symposium.

Market consensus on rate moves

Esther Liu, director and head of Greater China research and consultancy at Knight Frank, explained the local banking sector's likely stance. "Market consensus suggests that local banks are only likely to follow with a prime rate hike after back-to-back Fed rate increases or a significant rise in funding costs," she said.

The prime lending rate is the lowest interest rate banks charge commercial borrowers. It remains a key reference for mortgage pricing in the city, influencing decisions for homebuyers considering the squad of available loan products.

Mortgage trends and costs

Analysts report a shift among homebuyers. More are now opting for fixed-rate mortgages. These keep interest rates stable even if the Hong Kong interbank offered rate (Hibor) or the prime rate increases.

Liu noted that actual mortgage financing costs are expected to stay broadly stable. "Because the prime rate directly governs the effective mortgage rate cap, which is currently at 3.25 per cent, actual mortgage financing costs are expected to remain broadly stable," she added. This is the case even if some banks raise their fixed-rate mortgage plans by one-fifth of a percentage point to 2.93 per cent, a key detail for those tracking financial stats.

Fed watch tool signals shift

The CME FedWatch tool tracks Fed funds futures contracts. Following the symposium, it indicated a shift in expectations. Markets now price in a 60 per cent likelihood of a US rate rise this month. That figure represents a doubling of previous expectations.

In Hong Kong, the prime rate's stability is a focal point for the property market. Knight Frank's analysis suggests near-term changes will be minimal, a factor that could influence broader economic standings.