Prudential measures for residential mortgage loans (RML)

The Hong Kong Monetary Authority issued today (Friday) a circular to banks in Hong Kong to provide guidance on loan-to-value (LTV) ratios for residential mortgages on properties valued at $20 million or more.

For residential properties valued at $20 million or more, the LTV ratio will be capped at 60%. For properties valued at below $20 million, the 70% LTV ratio will be maintained, but the maximum loan amount will be capped at $12 million.¹

The measures will take effect immediately, but there will be a grace period for purchasers who have already signed provisional sale-and-purchase agreements on or before 23 October 2009. Such purchasers will still be able to apply, within one month from 23 October, for mortgage loans up to 70% LTV ratio.

The circular also reminds banks that they should be prudent in conducting valuation of properties and in calculating borrowers' debt servicing ratios (the ratio of their mortgage repayments to borrowers' income). In particular, banks should consider the effect on borrowers' ability to service mortgage payments when interest rates, which are currently at historical low levels, return to more normal levels.

The Chief Executive of the HKMA, Mr Norman Chan, said "These are prudential measures designed in the interest of maintaining banking stability, to enhance banks' risk management on mortgage lending to high-end residential properties. The lower LTV ratio for high-end properties will be helpful to banks in the management of the credit risks in lending against such properties." He also reminded prospective buyers of properties to take fully into account the impact of interest rates returning to more normal levels on their repayment ability and avoid overstretching themselves.

For further enquiries, please contact:
Hing-fung Wong, Manager (Communications), at 2878 1802 or
Natalie Wu, Officer (Communications), at 2878 8246

Hong Kong Monetary Authority
23 October 2009

¹ This is to avoid anomalies in which where purchasers of properties with a value just below $20 million would be able to borrow more than those buying properties valued at just above $20 million. For example the purchaser of a property valued at $19 million could borrow $13.3 million ($19 million x 70%), while the purchaser of a property valued at $21 million would only be able to borrow $12.6 million ($21 million x 60%).