2024-05-20 28Hse Editor
Will the government relax the loan-to-value ratio (LTV) for first-time home buyers again? Paul Chan Mo-po, Hong Kong’s financial secretary, said at a meeting of the Legislative Council Panel on Financial Affairs that the government had no intention of adjusting the property market's cooling measures for the time being, but would consider relaxing the LTV ratio for first-time home buyers where feasible.
If the government eventually relaxes the LTV for first-time homebuyers, this move will bring certain benefits to people hoping to purchase a home, and can reduce down payment. However, it is worth noting that the measures may stimulate demand and thus increase property prices, which may offset the effect of relaxing first-home mortgages.
The first proposal is to increase the maximum loan-to-value ratio from 90 per cent to 95 per cent.
How big is the difference? For a HK$6 million flat with a 25-year repayment period and a mortgage rate of 3.5 per cent, a 90 per cent mortgage will cost you HK$600,000 down and HK$27,033 per month, while a 95 per cent mortgage will cost you HK$300,000 down and HK$28,535 per month. This is suitable for buyers who do not have enough money for a down payment.
Under the current policy, buyers who apply for a mortgage above 60 per cent are required to apply for mortgage insurance. Subsequently, the second suggestion is to revert to the previous 70 per cent mortgage limit. That is, when buyers apply for a 70 per cent mortgage, they do not need to apply for mortgage insurance or pay any mortgage insurance premiums, so as to reduce the burden of buying a home.
The third suggestion is to relax the mortgage cap for first-time home buyers, from HK$4 million to HK$8 million for a 90 per cent mortgage loan and from HK$6 million to HK$10 million for an 80 per cent loan, which would help more buyers purchase new homes.
Since buyers are currently unable to apply for high-value mortgage loans through mortgage insurance for properties priced above HK$6 million, more and more new homebuyers are choosing to pay during the construction period. Assuming that an incomplete flat priced at HK$800 can only be mortgaged at 60 per cent of the purchase price, if the Government relaxes the maximum loan-to-value ratio to 90 per cent, the down payment will be reduced from HK$3.2 million to HK$800,000, a reduction of up to 75 per cent.
The fourth suggestion is that the Government should reintroduce the Home Starter Loan Scheme. The measure was introduced in 1998 to provide low-interest loans of HK$300,000 and HK$600,000 to first-time home buyers. Currently, many residents struggling to purchase property are unable to afford their down payments. If the Government were to re-introduce low-interest down payment loans, it could help such buyers get on the property ladder.
Although it is unknown when and how the government will relax the loan-to-value ratio, considering the above four proposals, it is likely that the first proposal is unlikely to be implemented due to property market volatility. If property prices fall slightly, when the property price is lower than the loan amount, this will lead to more cases of negative equity, which will affect Hong Kong's economy and the overall property market. As such, the government may wish to limit risks.
Many Hongkongers hope to realise their dream of homeownership. But buying a property is an expensive endeavour, and many residents spend their whole lives saving up for a home. If the government relaxes the LTV ratio for mortgages, this can shorten time required to save up for a down payment. This will ultimately help more people get on the property ladder, and promote overall housing market turnover.
Like 57
