Following the government's removal of property cooling measures, there was a spike in market transactions, but property prices have not improved. Many owners are still forced to sell at a loss. In response to the changing economic environment, mortgage insurance companies have introduced new arrangements to help owners manage special needs arising from personal or family circumstances changes.
The mortgage insurance scheme allows banks to offer higher loan-to-value ratios without assuming additional risk. Currently, properties can get up to 70% financing approved by banks. If owners wish to apply for more than a 70% mortgage, they must purchase mortgage insurance.
Three companies provide mortgage insurance: Hong Kong Mortgage Corporation Limited, QBE Insurance Group, and AIG Insurance Hong Kong. Since applicants must go through banks to apply for mortgages, the bank ultimately decides which insurance company to use.
Previously, mortgage insurance companies required that the insured property be owner-occupied. Failure to meet this requirement could lead to a demand for full repayment of the mortgage loan. However, due to market changes, starting from August 8th, mortgage insurance companies will approve on a case-by-case basis, allowing qualified owners to rent out their owner-occupied properties.
This includes scenarios where: (1) An owner's family is expecting a newborn or adopting a child, necessitating a change in housing needs; (2) An owner becomes unemployed, requiring more flexible housing or financial arrangements; (3) An owner has other special needs to rent out the property, having lived in it for at least 12 months.
Owners can apply through banks for an exemption from the owner-occupancy requirement of the mortgage protection plan. The application must include a signed declaration and supporting documents or explanations for the exemption request.
It is not yet clear how easily these applications will be approved, but according to the insurance companies, if an owner has other residential properties in Hong Kong besides the one under the mortgage protection plan, their application will not be accepted. Approved owners must commit to having Hong Kong as their primary residence during the exemption period and neither they nor their co-debtor spouse or cohabiting partner (if any) will purchase other residential properties in Hong Kong.
The easing of mortgage insurance requirements allows qualified owners to rent out insured properties. This new arrangement has been generally well-received in the market, offering flexibility based on the personal or family changes of the owners, aiding those in need of financial help during tough times, and providing more options for owners looking to switch homes or rent out multiple properties.
It is important to note that unless an exemption is applied for, the property must be owner-occupied to apply for a high-ratio mortgage. If it is found that an owner has rented out the property without prior approval—declaring it as owner-occupied but actually renting it out—this constitutes fraud and false declaration, which is illegal and can lead to criminal charges. There have been cases where individuals have been imprisoned for such offenses, so it is crucial not to take such risks.
