The rejection of buyers borrowing a high percentage mortgage for the first housing triggers attention.
The Government relaxed the property price upper limit under mortgage insurance of the high percentage for first housing days ago, and customer even no need to pass the stress test of raising interest rates by 3% to borrow 90% of mortgage for residence under HKD8 million and 80% for that at HKD10 million, releasing a batch of purchasing power that has repayment ability but lack of initial installment. However, last week, one buyer applied for a high percentage mortgage and was rejected, triggering government concern, and Hong Kong Monetary Authority (HKMA) also clarified a number of details. Some insider points out to the Hong Kong Wen Wei Po that, some banks that run out of mortgage quota have already processed mortgage applications by the quota of next year after the HKMA wrote to the bank to clarify the new regulations.
Hong Kong Wen Wei Po (by Ma Chui-mei)
Government announced the Policy Address in the middle of this month to launch the new mortgage insurance measures, relaxing the high percentage mortgage under mortgage insurance plan for the first housing, with the property price upper limit for mortgage in 90% was doubled from HKD4 million to HKD8 million; The property price upper limit for mortgage in 80% was increased from HKD6 million to HKD10 million, and it will be suitable for customer who changes houses. Under the new measures, customers only need to pay extra premiums and don't even have to pass the stress test of raising interest rates by 3%. The measures will take effect on the same day. As soon as the news came out, it immediately stimulated a surge in property transactions. However, some buyers reported last week that some banks refused to approve such high percentage mortgages, then buyers entered in a dilemma immediately, and the benevolent rules become a trap, causing market and government attention.
Banks weren’t ready since there had no prior notice.
According to the Hong Kong Wen Wei Po, the reasons why the government policy is not in sync with the banking industry are two. First, the government kept confidentiality before the announcement and banks were unprepared. Second, the mortgage quotas of many banks were run out near the end of the year, so they slowed down the processing. Some banking insiders say that there had been rumors that the Policy Address would focus on the housing policy and was speculated that it would relax the property mortgage, but the authority denied, and the industry dispelled this idea, so banks weren’t ready. It is reported that the regulatory authorities required strict confidentiality beforehand, to avoid large changes in the information-sensitive property market, so they had not consulted and communicated with the banking industry beforehand.
Relevant sources revealed that, the regulators’ keeping confidentiality caused banking industry’s maladjustment in short term after the announcement of the measures, and approval requirements were unclear since there had been no prior communication, so some banks slow down the approval process due to chaos arose in applications or even stop the approval under risk management, also the incident has triggered market and government attention.
In fact, under mortgage in 90% (assuming a 30-year mortgage period and a mortgage rate of 2.625%), the previous monthly installment payment was only HKD14,459 for buying property of HKD4 million, while the current monthly installment payment doubled to HKD28,919 for buying property of HKD8 million; The income needs to be increased significantly from HKD32,131 to HKD57,838 to meet the requirement for the Debt Servicing Ratio (DSR). For buying property at HKD10 million, the monthly installment payment under mortgage of 50% at the most was HKD20,083 in the past, while the current monthly installment payment under mortgage of 80% increases to HKD32,132 and the income needs to be increased from HKD40,166 to HKD64,264 to meet the requirement for the Debt Servicing Ratio (DSR)
The approval time is long and the mortgage interest is high.
Some banking insider reveals to the Hong Kong Wen Wei Po that, there is a period of time for mortgage approval, although some banks slow down the approval processing due to run out of mortgage quota, some banks have to use the quota of next year to process the mortgage applications in response to government’s measures, not stopping mortgage approval as the rumor says, and some banks require higher mortgage interest, so applicants should reserve more time to apply in this congestion time.
The Managing Director of Centaline Mortgage, Wong Mei-fung believes, some banks may not be aware of every detail since the new measures were just introduced, and Hong Kong Monetary Authority has already sent letters to banks to clarify the requirements under the new measures, so it is believed the approvals will return to normal successively.
The economist of the Dah Sing Bank, Wan Ka-wai expresses, although the government has relaxed the high percentage mortgage under mortgage insurance plan for the first housing, with the lowest requirement is some buyers only need to meed the condition of DSR in less than 50% even if they are not able to pass the stress test, it is believed the mortgage applications meeting the lowest requirement will not be many since some individual banks may still consider the factors of their own business strategies, capital costs and so on, which means, banks will not need to fully follow up but will process depending on individual banking strategies, although the regulator has relaxed the relevant threshold. On the other hand, he believes the mortgage new measures will not necessarily attract a large number of the first buyers since Hong Kong property prices are still high, so it may not bring too much risk to the banks.
Sticking to DSR can control risk.
The economist of OCBC Wing Hang Bank, Lee Yeuk-fan believes, the original intention of the stress test is to ensure that buyers still have sufficient repayment ability under the interest rate hike cycle to avoid the risk of failing to repay after the interest rate hike in the future, while current situation has changed, and current interest rates are more likely in downward than in upward, so it is believed that new measures will not bring too much impact on banks even though the stress test is exempted.
She also points out that, the requirement of DSR for the first buyers under new measures is still no more than 50%, which in fact has limited the buyers’ income, and it is believed that most of the eligible ones are middle-class buyers, plus mortgage insurance plan has certain guarantees for the banks, so there is no sign of too much risk to the related asset quality of banks currently.