Typically, when banks assess mortgage applications, they require applicants to provide proof of income and evaluate repayment ability based on the debt-to-income ratio. However, aside from income, banks may also approve loans based on an applicant’s net asset value.
An asset-based mortgage, simply put, allows applicants to use their assets as collateral to apply for a loan. This type of mortgage is ideal for individuals who own unencumbered properties (properties without debt) or have substantial assets but lack steady income proof, such as retirees or freelancers.
What is an unencumbered property? This refers to a property with no outstanding mortgage or debt obligations. For instance, if a property has been fully paid off and the title deed is reclaimed, or if the property was purchased outright without a mortgage, it qualifies as collateral for an asset-based mortgage.
According to the Hong Kong Monetary Authority (HKMA), the maximum loan-to-value (LTV) ratio for asset-based mortgages is 70%. In other words, the applicant’s net assets must equal or exceed the value of the property in order to qualify for the maximum 70% mortgage. Net assets are calculated as total assets minus total liabilities.
Eligible assets fall into three main categories: liquid assets, fixed assets, and other assets. Liquid assets include cash and bank deposits, stocks, and savings-type insurance policies. Meanwhile, fixed assets refer to properties, vehicles, and gold.
Other assets include bonds, rental income, or other investments with regular returns.
By leveraging assets instead of income, this type of mortgage provides greater flexibility for individuals with significant wealth but irregular earnings.
Banks have varying methods for calculating net assets. For properties located in Hong Kong, banks generally consider 50% of the property’s current market value. If the property has an existing mortgage, the outstanding loan amount will be deducted from this value. Properties located outside Hong Kong, however, are typically excluded from the calculation. Cash and fixed deposits are usually valued at 100% of their market value.
When it comes to stocks, some banks calculate based on the full market value, while others apply a discount. Blue-chip stocks are usually calculated at 50% to 70% of their market value, whereas small-cap or more volatile stocks may face even higher discount rates.
One major advantage of asset-based mortgages is the simplicity of the application process, as fewer documents are required. For property owners with no outstanding debts and a clear title, the application typically only requires an ID card, proof of address, and bank statements. Since no income assessment is necessary, approval is often quicker compared to traditional mortgage applications.
The main limitation is that asset-based mortgages only allow up to 70% loan-to-value (LTV), whereas income-based mortgage plans can offer up to 90% LTV. This significant difference in borrowing limits makes asset-based mortgages less accessible for buyers with limited funds for a down payment, as the entry threshold is higher.
Since each bank has its own criteria for calculating assets, the final loan amount approved can vary significantly. Those interested in applying for an asset-based mortgage are advised to consult multiple banks to compare their calculation methods and understand the terms before proceeding.
