With more than 20 years covering Sai Kung and ClearWaterBay areas, our agency always pays attention to what’s going on in the real estate market. After Hong Kong’s housing prices increased more than 200% in the last ten years, many residents became unable to afford homes or to find properties under the value limit eligible for a 10% down payment. Home prices in Hong Kong’s secondary market, despite the recent street protests, went up to a record high, 500% up compared to 2003 following the Sars outbreak.
Mortgage in Hong Kong, what are the new rules?
Now Hong Kong’s chief executive Carrie Lam announced plans to relax mortgage rules to help first-time home buyers. What does it mean:
For mortgage loans up to 90% loan-to-value (LTV) ratio applicable to first-time homebuyers (provided mortgagors are not holding any residential properties in Hong Kong at the time of applying for mortgage insurance), the maximum property value is getting raised to HK$8 million, versus HK$4 million previously.
Therefore first-time home buyers will be able to buy more expensive homes with a down payment of just 10%. The new measure is applicable to completed self use private residential properties under personal ownership.
The maximum property value eligible for mortgage loans up to 80% loan-to-value (LTV) ratio will also be raised from HK$6 million to HK$10 million.
For homebuyers taking mortgage loans with property values going beyond the existing caps (i.e. HK$10 million for mortgage loans up to 80% LTV ratio and HK$8 million for mortgage loans up to 90% LTV ratio), an additional 15% premium for mortgage insurance will be charged, which can be paid together on a monthly basis with the mortgage repayment.
Until the new policy, general homebuyers had to pass stress tests which were set by banks and could spend up to half of their monthly income on mortgage repayments.
With the new measure first-time homebuyers can be excluded from the stress test and still be eligible for up to 90% loans (subject to the additional 15 per cent premium for mortgage insurance).
The rules only apply to the buyers covered by the Mortgage Insurance Programme, a plan issued by the Government to assist first-time home buyers.
Is this good news for you?
As an example, with this new rule, with a 90% mortgage a buyer of an HK$8 million property in Sai Kung (or elsewhere in Hong Kong) will have his initial down-payment falling to HK$800,000, versus HK$2.4 million previously.
Now considering an average mortgage rate of 2.6% on a 30-year loan, for the above example the monthly repayment will still rise to HK$29,000.
However as the monthly mortgage payment can’t exceed 50% of the borrower’s household income, this scenario would require a monthly salary or income of HK$58,000, while the Hong Kong’s average monthly income is just about HK$17,500 (from the government data).
Therefore the new rule may raise concerns that some people could be taking on too much risk, as someone might be able to afford the down payment for their property (now as little as 10%), however with no certainty they will be able to afford the mortgage payments afterwards.
With the the new policy transactions on properties valued below HK$10 million are expected to increase by 20%, as more people will be able to afford a down payment. However without an increase in the total housing supply housing prices may rise even more.
Another aspect that needs to be watched out is the market movements. Despite home prices in Hong Kong being at a record high, someone might still be buying a property at a high point in the market today and (as already observed, not be totally safe from an economic downturn following some market movements), could end up getting stuck with negative equity, meaning the value of the property is becoming less than the outstanding balance on the loan taken.
Consequently as much as the new mortgage rules are attractive and will definitely help out first time home buyers, before taking a mortgage right away, step back for a moment, think, consider your debt to income ratio and ensure you will have the ability to pay up your monthly installments , understand the market you’re buying in, and if you’re struggling, don’t hesitate to talk to a mortgage advisor.
For enquiries on properties up to HK$10 million in Sai Kung and ClearWaterBay, just contact our team:
Eastmount property agency limited – 27910498 / 96677186