2024-05-14 28Hse Editor
Hong Kong’s property market has slowed significantly in recent years, with the private domestic price index falling for the fourth consecutive month and many homeowners slashing home prices or even selling at a loss. Amid a sluggish market, many have called for cooling measures to be scrapped.
As the new Policy Address will be delivered on October 25, it is unknown what measures will be introduced for the time being, nor do we know whether cooling measures will be scrapped. However, before the release of the Address, the Government relaxed mortgage loans for uncompleted homes on September 22, which has brought hope to the market.
The new amendment only focuses on mortgage insurance for uncompleted homes, so that buyers will not be forced to choose the construction period payment method in order to apply for a high loan-to-value ratio when purchasing new flats. After the amendment, the maximum loan-to-value (LTV) ratio for mortgage insurance for uncompleted homes valued at HK$10 million or below will be set at 90%.
For uncompleted properties valued at between HK$10 million and HK$15 million, the maximum loan-to-value ratio will be 80% or the loan ceiling of HK$9 million, whichever is higher. As for uncompleted properties valued at HK$15 million to HK$30 million, the maximum loan-to-value ratio will be 70% or the mortgage loan ceiling of HK$12 million, whichever is higher.
This revision by the Mortgage Corporation to align the eligibility criteria with those for completed residential properties also considers current market conditions as well as its own business conditions and risks, and aims to assist more people in purchasing homes.
It’s worth mentioning that the new amendments are not applicable to all new developments. According to the scheme’s eligibility criteria, uncompleted homes must belong to the development projects under the Lands Department Consent Scheme, and has to be completed within 12 months that the mortgage loans begin. If the property fails to meet the above requirements, the mortgage insurance company will consider it individually based on risk factors.
Under the new measures, buyers of new projects may generally choose the higher discounted instant payment method instead of construction installment payment, because in the same situation where they can apply for a mortgage of up to 90%, there are risks involved in opting for a construction installment payment.
Under the construction installment payment method, the buyer needs to pay the remainder of the property price to complete the transaction when the building is completed. However, due to the long period between signing and closing, if the property market drops significantly when applying for a mortgage, the building may be undervalued. This means that the bank may offer a smaller mortgage, while you pay off the remainder by yourself. The bank may even choose to decline a mortgage application.
If buyers are unsure whether their uncompleted properties will be covered by the mortgage scheme, the safest way is to consult lending banks to set an appropriate budget. As the government has chosen to relax mortgage rules for uncompleted flats at this time, we will have to see what unfolds next once the Policy Address is delivered.
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