Hong Kong's largest bank has rolled out a fixed-rate mortgage plan, charging lower interest for home loan borrowers ahead of the first relaxation in monetary policy this year, expected in mid-September.

HSBC launched a mortgage plan fixed at 2.73 per cent per annum on Monday for either the first three or five years, according to a release. The rate is cheaper than HSBC's February offer, which came with options of either 3.18 per cent interest for the first three years, or 3.04 per cent for the first five years.

The cheaper rate came after the Federal Reserve's chairman, Jerome Powell, sent dovish signals about a possible cut in interest rates during the US central bank's annual retreat at Jackson Hole over the weekend. The capital markets are now betting on an 87.2 per cent probability of a cut when the Fed meets on September 18, according to the futures contracts traded on the Chicago Mercantile Exchange.

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HSBC's latest offer is also cheaper than Hong Kong Mortgage Corporation's 10-year fixed rate loan at 4.24 per cent per annum. The new product aims to offer a stable and low repayment for borrowers, said Sydney Massunaga, HSBC's head of assets and liabilities, wealth and personal banking.

A view of HSBC Building in Central on July 30, 2025. Photo: Eugene Lee alt=A view of HSBC Building in Central on July 30, 2025. Photo: Eugene Lee>

"Our fixed-rate mortgage plans are designed to offer predictability and assurance by locking in monthly mortgage payments, even in a highly volatile interest rate environment," he said in a statement. "Family budgeting can be challenging, especially when it involves a mortgage liability, the monthly repayment of which will fluctuate with interest rate movements."

The fixed rate came as Hong Kong's interbank offer rates (Hibor) had been driven up by the local monetary authority's defence of the city's dollar peg, which drained liquidity from the financial system and drove up the cost of funds. That would mark the end of the so-called "low-rate honeymoon" for borrowers whose loans were based on the Hibor, said Eric Tso Tak-ming, chief vice-president of mortgage broker mReferral.

Potential buyers of the Tai Wai Uni Residence apartments at the developer Vanke Hong Kong's sales office at AIA Kowloon Tower in Kwun Tong on May 31, 2025. Photo: Edmond So alt=Potential buyers of the Tai Wai Uni Residence apartments at the developer Vanke Hong Kong's sales office at AIA Kowloon Tower in Kwun Tong on May 31, 2025. Photo: Edmond So>

At 2.73 per cent, a borrower would save HK$2,093 (US$268) per month, or 9 per cent, in repayments on a HK$5 million loan for 30 years, according to calculations by mReferral.

"More banks are expected to consider also offering fixed mortgage plans as the low-rate honeymoon is over," Tso said.

"Homebuyers may be more in favour of fixed-rate mortgages now as the interest rate may not go down any further in the near term," Tso said, adding that the fixed rate only applied to the initial years of the loan term. "Even if the Fed cuts interest rates by 25 basis points, Hibor may not go down much further."

The greatest financial pressure of mortgage loans is usually most acute during the initial years of the loan's term, so any savings from the scheme would be "supportive" for customers, said Catherine Chui, HSBC's head of mortgages, wealth and personal banking.

Potential buyers queued during the sale of Sun Hung Kai Properties' Sierra Sea apartments at the International Commerce Centre on May 3, 2025. Photo: Elson Li alt=Potential buyers queued during the sale of Sun Hung Kai Properties' Sierra Sea apartments at the International Commerce Centre on May 3, 2025. Photo: Elson Li>

Hibor's volatility can be traced back to early May amid a massive capital inflow into Hong Kong, which caused the overnight borrowing cost to dwindle to between 0.5 and 0.9 per cent, from as much as 3.5 per cent in April.

That caused the interest on Hibor-linked loans to fall to 1.8 per cent in June, from 3.5 per cent earlier. That was good news for the Hibor-linked borrowers, who made up 94.7 per cent of the new loans taken out in June, according to data compiled by the Hong Kong Monetary Authority (HKMA). Prime rate-based loans made up 1.7 per cent, while fixed-rate loans made up 0.1 per cent, the HKMA said.

Still, the 4 percentage points gap between the Hibor and US interest rates created room for the so-called carry trade, enabling currency arbitrageurs to borrow at low rates (Hong Kong) to invest at high rates (the US), hence weakening the local currency.

To defend the local currency, the HKMA intervened in the currency market 12 times over the past two months to maintain the dollar's peg. That caused the one-month Hibor - used for pricing mortgages - to jump to 2.7272 per cent on Monday, compared with 0.9520 per cent two weeks ago, according to the Hong Kong Association of Banks. This resulted in the effective Hibor-linked mortgage rate doubling to 3.5 per cent last week, compared to 1.82 per cent in June.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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