News Analysis: HKMA lowers home buyers stress test requirement for mortgages.
Following the latest US Fed fund rate hike, major banks in Hong Kong have raised the prime rate by 12.5bps, the first increase since Sep 2018. Elsewhere, the Hong Kong Monetary Authority announced that it is lowering the interest rate stress testing requirement for potential home buyers from 3% to 2%, with immediate effect. We believe this is a sensible move since effective mortgage rates have risen from 1.45% at the beginning of 2022 to the current 2.875% following the prime rate increase. Yet, with prime rate on an upward trajectory along with Fed fund rates hike, we expect effective mortgage rate to further rise to 3.5% in 1Q23 which should weigh on home demand in the coming months.