【Mortgage Rates】One-Month HKD Interbank Rate Falls to 1.95%, H-Rate Hits Cap Level - How is HIBOR Priced?

The one-month Hong Kong dollar HIBOR related to the mortgage rate has been falling for consecutive days. After dropping to 1.95107% on Monday (23rd), it further declined to 1.95% on Tuesday (24th). This level is a critical point; if the one-month HKD HIBOR falls below this level, the H mortgage rate will drop below the cap rate, causing the effective mortgage rate to fall below 3.25%.

Table of Contents

• Hong Kong Interbank Offered Rate (HIBOR) Quotes on March 24
• Cao Deming from Meridian: If large capital inflows enter the local banking system, HIBOR may fall below 1.95%
• How is HIBOR priced?

The H mortgage rate is the lower of the two: “One-month HIBOR (H) + Bank’s additional rate of 1.3%” = actual mortgage rate, or “Prime Rate (P) — Bank’s discount of 1.75%.” For example, HSBC’s current P rate is 5%, and the cap rate is P minus 1.75%, which equals 3.25%. Today, with the one-month HIBOR at 1.95%, plus the bank’s 1.3% additional rate, it totals exactly 3.25%. Therefore, the 1.95% level is considered a critical point. If the next trading day’s one-month HIBOR drops below 1.95%, the actual mortgage rate (H + 1.3%) will fall below the 3.25% cap rate, allowing borrowers to truly benefit from lower rates, as their monthly payments will effectively decrease.

Hong Kong Interbank Offered Rate (HIBOR) Quotes on March 24

Cao Deming from Meridian: If large capital inflows enter the local banking system, HIBOR may fall below 1.95%

Cao Deming, Chief Vice President of Meridian Mortgage Referral, stated that based on the current standard calculation of the H mortgage (“H + 1.3%”), borrowers still need to pay at the cap rate of 3.25%. The trend of HIBOR depends on seasonal factors, market activity, and demand for HKD. Currently, the total balance in Hong Kong’s banking system is about HKD 53.8 billion. Due to geopolitical influences, foreign capital may flow into Hong Kong. If a large amount of capital enters the banking system, HIBOR could fall below 1.95%, allowing H mortgage borrowers to pay below the cap rate of 3.25%. However, external capital flows are still uncertain, and the future US monetary policy remains unpredictable. Prospective homebuyers should regularly monitor market and interest rate trends.

How is HIBOR priced?

According to the Hong Kong Association of Banks, the HIBOR benchmark rate is determined by “excluding the three highest and three lowest quotes from the banks providing quotes, and averaging the remaining middle quotes.” The Hong Kong Interbank Offered Rate (HIBOR) is managed by the Hong Kong Interbank Clearing Limited, which collects quotes from 12 to 20 reference banks each morning at 11:00 am, and calculates the average using the above method, releasing the result at 11:15 am.

The Hong Kong Monetary Authority’s “Code of Conduct for Benchmark Rate Setting” states that, according to the definition of HIBOR, “Participating banks must provide an estimated rate at 11:00 am for HKD deposits lent to prime banks in the Hong Kong interbank market.” To ensure the credibility of the HIBOR pricing mechanism, these estimates must be supported by clear and transparent transaction data. Such transactions must be conducted on an arm’s length basis (fair transactions between unrelated parties) to ensure their bona fide nature.