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Fine-tuning mortgage arrangements
With such factors as rising interest rate and a weak macro economy, Hong Kong’s housing prices had once fallen by around 16% from a record high since September 2021. Starting this year, as the epidemic came to an end, and Hong Kong resumed convenient connection with the Mainland and the world, the economy is recovering, and the property market had stabilised in the first quarter of this year. As at May 2023, the overall residential property prices were down by 12% from their peak in 2021. The average number of monthly residential property transactions in the first half of 2023 returned to around 90% of the five-year average before the epidemic.
Having taken into account a range of factors, including the current property market situation, the local economy, the external conditions, etc., we consider that there is room to adjust the countercyclical macro-prudential measures for certain property mortgage loans. The aim is to reduce the down payment burden for members of the public in purchasing their first property for self-use, or switching to another property, without increasing the risks posed to the banking system. It is worth emphasising that this adjustment aims to reduce the down payment and mortgage insurance costs for members of the public, and the measures are clear and focused.
As for the demand-side management measures for residential properties to suppress speculative and investment activities, commonly known as the "harsh measures", they remain unchanged. Indeed, we must put the home ownership needs of local residents first. It should be stressed that this adjustment is not any change to relaxing the “harsh measures”, or any prelude to such change. The Government has no plan to relax them.
Following the Hong Kong Monetary Authority’s (“HKMA”) adjustments to the macroprudential measures, the latest regulatory requirements for bank mortgages are as follows:
| |
Regulatory requirements after adjustment |
Mortgage Insurance Programme after adjustment |
| |
Property Value (HKD) |
|
Property Value (HKD) |
|
| Residential properties for self-occupation |
At or below 15 million |
70% |
Below $10 million |
90% |
| Above $15 million and below $17.5 million |
60% to 70%
(Maximum loan amount: $10.5 million) |
Above $10 million and below $11.25 million |
80% to 90%
(Maximum loan amount: $9 million) |
| $17.5 million to $30 million |
60% |
$11.25 million to $15 million |
80% |
| Above $30 million and below $36 million |
50% to 60%
(Maximum loans amount $18 million) |
Above $15 million to $17.15 million |
70% to 80%
(Maximum loan amount $12 million) |
| At or above $36 million |
50% |
Above $17.15 million to $30 million |
70% |
| Residential properties not for self-occupation |
Regardless of the property value |
Maintained at 50% |
Not applicable |
Not applicable |
| Non-residential properties |
Regardless of the property value |
From 50% to 60% |
Not applicable |
Not applicable |
From the user perspective, fine-tuning the property mortgage loan arrangement can relieve some actual down payment burden for members of the public in purchasing their first property for self-use or switching to another property. As the portion requiring insurance coverage for certain mortgage loans is slightly reduced, the relevant mortgage insurance premium will also be lowered. In addition, the Hong Kong Mortgage Corporation (“HKMC”) will offer a special premium concession to first-time home buyers by waiving premium on insurance coverage for the mortgage loan portion not more than 5% above the maximum loan-to-value (“LTV”) ratio for banks for properties valued up to HK$15 million.
Measures for property mortgage loans has all along been aimed at ensuring that the banking sector has sufficient resilience to manage financial risks and to avoid over-leveraging in the mortgage market when the property market is exuberant. We have been closely monitoring changes in the property market, interest rates, capital flows, as well as the external and domestic economic and financial environment, and make appropriate adjustments to the measures as necessary.
Over the past three years, we made adjustments to the measures for property mortgage loans mainly by relaxing the LTV ratio under the Mortgage Insurance Programme (“MIP”). Under the MIP, for example, for first-time home buyers to apply for mortgage loans of up to 90% of the property value, we raised the property value cap in phases from $4 million to $10 million; for mortgage loans of up to 80% of the property price, we raised the property value cap to $12 million. The market reacted positively to these adjustments, and the residential property market did not undergo much volatility. These measures were intended to make the down payment less burdensome and to provide more choices for first-time home buyers.
Excessive volatility in the property market will adversely impact on the economy and the well-being of the society. As elaborated above, the macro-prudential measures relating to the LTV ratios for property mortgage loans are neither invariable nor flip-flopping. The fundamental principle is to maintain stability of the banking sector while at the same time cater for the needs of the public in buying their own homes.
July 7, 2023
