Mortgage Rates Plunge 75 Basis Points as HIBOR Drops 79%

The Mortgage Interest Rate Index (MMI) for June 2025 plummeted to 2.05%, marking a 75 basis point decrease from the previous month and hitting a three-year low. This significant drop was primarily due to a decline in the Hong Kong Interbank Offered Rate (HIBOR). The actual interest rate for H, calculated using the "H+1.3%" plan, stood at 2.47%, which is 1.03% lower than the capped rate of 3.5%.

Over 95% of new mortgage customers in June opted for the H plan, indicating a strong preference for this type of mortgage. The Hong Kong Monetary Authority's interventions in late May and June, which involved buying Hong Kong dollars, led to a surge in the banking system's reserves, reaching 174 billion Hong Kong dollars. This influx of hot money caused HIBOR to plummet, with the average one-month HIBOR for June dropping to 0.68%, a 79 basis point decline from May's 1.47%. Consequently, the MMI also experienced a significant decline.

In recent months, the Hong Kong dollar has repeatedly triggered the "weak side conversion guarantee," prompting the Hong Kong Monetary Authority to intervene and buy Hong Kong dollars. This has caused the banking system's reserves to fall below 100 billion Hong Kong dollars, reaching 86.429 billion Hong Kong dollars. As a result, HIBOR has been on an upward trajectory, with the one-month HIBOR currently at 1.17% and maintaining above 1% for eight consecutive working days.

The interest rate differential between Hong Kong and the United States remains substantial, providing opportunities for carry trades. In the future, there is a possibility of triggering the "weak side conversion guarantee" again, which could prompt the Hong Kong Monetary Authority to intervene and buy Hong Kong dollars. This could lead to a further decline in the banking system's reserves and potentially push HIBOR to test the 1.5% level. Prospective homebuyers are advised to stay informed about market conditions and interest rate trends.