In the previous article, we discussed the difference between “top-up mortgages” and “second mortgages.” In particular, we mentioned that before applying for a second mortgage, homeowners must first obtain consent from the original first-mortgage bank. Otherwise, this not only violates the original mortgage terms, but may also expose the homeowner to the risk of a “call loan,” where the bank demands early repayment of the outstanding mortgage.
Many homeowners take a chance, thinking that if they secretly apply for a second mortgage behind the first-mortgage bank’s back, they can get away with it unnoticed. In reality, this is simply impossible. So through what channels can the original first-mortgage bank immediately find out that the homeowner has secretly taken out a second mortgage?
Indeed, if the homeowner has always made mortgage repayments on time, banks generally would not proactively or randomly review the mortgage case without reason. However, since 2017, the Hong Kong Monetary Authority has considered that such breaches would increase the credit risk faced by banks. Therefore, it required banks to introduce the Land Registry’s e-Alert Service to strengthen risk management for mortgage loans.
The emergence of this connected notification mechanism means that all attempts to secretly apply for second mortgages behind the bank’s back can no longer be hidden. What is the e-Alert Service? Whenever a homeowner applies for a first mortgage or a top-up mortgage from a bank, the bank will require the homeowner to sign a consent form at the same time, which will then be connected to the Land Registry’s system.
In the future, if there is any top-up mortgage, second mortgage, or even other related credit document involving the property submitted to the Land Registry for registration, the Land Registry will immediately send an automatic notification to the original first-mortgage bank. As a result, these private borrowing activities simply cannot be hidden.
Of course, the homeowner may choose not to provide authorisation to the bank. However, once they choose not to consent, the bank will determine that the mortgage carries an extremely high potential credit risk. In the end, the bank may very likely directly reject the loan application, substantially raise the interest rate, or lower the mortgage loan-to-value ratio to offset the risk.
Apart from the Land Registry’s e-Alert Service, banks also have another proactive method, which is to conduct regular spot checks on TransUnion credit reports. Although this method requires banks to take the initiative, it can guard against the loophole commonly known as “mortgage pending registration.”
So-called “mortgage pending registration” refers to a type of property loan for which registration with the Land Registry is temporarily deferred. After the borrower signs the relevant loan documents, after the borrower signs the relevant loan documents, the mortgage deed is temporarily not submitted to the Land Registry for registration.
During this gap period, the e-Alert Service is unable to issue a notification. However, as long as the relevant financial institution reports the loan to TransUnion during the approval or disbursement process, the first-mortgage bank can discover it through proactive spot checks of the TU report, gaining early insight before the second mortgage is officially registered. This renders the homeowner’s delaying tactic completely ineffective.
So, when the first-mortgage bank discovers that the homeowner has privately taken out a second mortgage, how serious are the consequences? The most direct penalty is the “call loan” mentioned earlier, requiring the homeowner to repay the full mortgage loan within a specified period. If the homeowner is lucky, the bank may choose to show leniency and not immediately repossess the property. However, it will still take tough remedial measures, including substantially raising the existing mortgage interest rate, or ordering the homeowner to repay part of the principal within a specified period to lower the mortgage loan-to-value ratio.
