HK government relaxes mortgage rules Down payment for HK$15 million homes falls by HK$3 million

The Financial Secretary, Paul Chan Mo-po, revealed about a month ago that the Government would consider further marginally relaxing the loan-to-value (LTV) ratio for first-time homebuyers. On 7 July, the Hong Kong Monetary Authority (HKMA) relaxed the city’s LTV ratios, and on the same day, the Hong Kong Mortgage Corporation (HKMC) increased its mortgage insurance coverage. 

After the relaxation of the LTV, the maximum ratio for owner-occupied properties valued at HK$15 million or below can be up to 70 per cent without the need for mortgage insurance. Meanwhile, the maximum LTV for properties valued at HK$15 million to HK$30 million goes up to 60 per cent, and the maximum ratio for properties valued at HK$30 million or above will remain unchanged at 50 per cent. 

What are the differences? Let's take a HK$15 million flat for example, assuming an interest rate of 3.5 per cent and a 30-year repayment period. Before the relaxation, the maximum LTV ratio was 50 per cent of the property price; in other words, the down payment was HK$7.5 million. Following the relaxation of the LTV to 70 per cent, the down payment was reduced to HK$4.5 million, a difference of HK$3 million. 

However, the measures come with several caveats. While the proportion of mortgage repayment to income and the banks' stress test requirements remain unchanged, the income requirement and monthly repayment for home buyers will also increase. Reducing the down payment means a rise in the monthly instalment from HK$33,678 to HK$47,149, marking a 40 per cent increase. 

In response to the HKMA's relaxation of the maximum LTV ratio, the HKMC has raised the maximum ratio for mortgage insurance. The maximum LTV ratio for homes between HK$11.25 million and HK$15 million has been raised to 80 per cent. Meanwhile, the maximum ratio for properties between HK$15 million and HK$17.15 million has been raised from HK$9.6 million to HK$12 million. As for properties between HK$17.15 million and HK$30 million, the maximum LTV ratio has been raised to 70 per cent. 

In addition, as mortgage insurance is not required to cover 60 to 70 per cent of the mortgage, the premium for mortgage insurance will be lowered. For example, if a 90 per cent mortgage is applied for a HK$10 million property with a repayment period of 30 years, the premium will be lowered from 3.44 per cent to 2.65 per cent of the loan amount. Buyers will have to check the latest premium table for mortgage insurance when applying for mortgage insurance. 

The relaxation aims to reduce the down payment burden of first-time home buyers and those hoping to trade up – but how will this impact the overall property market? 

The new measures will undoubtedly lower the minimum threshold for first-time buyers to enter Hong Kong’s property market. However, the measures are only applicable to purchasers of properties with a value of HK$15 million or above. As such, not all will benefit from the measures. Therefore, at this stage, the number of second-hand transactions has not seen any significant change. 

As for the Mortgage Insurance Programme for incomplete flats – a big matter of concern – the HKMC has not made any adjustments for the time being, and will continue to maintain the maximum LTV ratio of 90 per cent for mortgages of less than HK$4 million, and the maximum loan-to-value ratio of 80 per cent for mortgages of less than HK$6 million. Mortgages exceeding HK$6 million will not meet the eligibility criteria of the Programme. 

Therefore, buyers who are interested in purchasing a new property can consider choosing the construction period payment method and awaiting the completion of the property before applying for a mortgage loan, in order to apply for the new mortgage insurance. The risk is that when the property price falls at the time of repossession, the bank may lower the mortgage valuation, meaning that buyers may have significantly break their budget.  

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