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Prudential Measures for Property Mortgage Loans

The Hong Kong Monetary Authority (HKMA) issued today (Friday) guidelines to banks on a new round of prudential measures for property mortgage loans to strengthen banks’ risk management and resilience.  The measures are as follows:

First: Raising the risk-weight floor from 15% by 10 percentage points to 25% for new residential mortgage loans granted after 19 May 2017 by banks using Internal Ratings-Based Approach to calculate capital charges for credit risk.

Second: Lowering the applicable loan-to-value ratio (LTV) cap by 10 percentage points for property mortgage loans extended to borrowers with one or more pre-existing mortgages, in addition to observing the existing requirement of lowering the applicable debt servicing ratio (DSR) limit by 10 percentage points;

Third: Lowering the applicable DSR limit by 10 percentage points for property mortgage loans extended to borrowers whose income is mainly derived from outside of Hong Kong, in addition to observing the existing requirement of lowering the applicable LTV cap by 10 percentage points.

These three measures take immediate effect.  However, mortgage applications for transactions with provisional sale and purchase agreements signed today or earlier will not be affected for the second and third measures.

Mr Norman Chan, the Chief Executive of the HKMA, said, “The risk of overheating in the property market in Hong Kong continues to increase.  According to the latest statistics of Rating and Valuation Department, property prices in March 2017 have surpassed the recent peak recorded in September 2015.  Transaction volume for residential properties has increased by more than double from about 3,300 in January 2017 to about 7,000 in April 2017.  Meanwhile, the keen competition for mortgage business in the banking sector has heightened the risk of overheating in the property market, and weakened the resilience of banks to cope with a downturn in the market.  Given these developments, the HKMA considers that there is a need to introduce new measures to strengthen the risk management of banks.”

“I would like to remind the public that, for most people, buying a property is not only one of the most important decisions in life, it is also a financial transaction entailing significant leverage through borrowing.  Prospective buyers must be mindful of their ability to cope with the potential risk that may arise from possible changes in the property cycle as well as mortgage interest rates.”

“The HKMA will continue to monitor the property market closely, and will introduce appropriate counter-cyclical measures to safeguard the stability of the banking system.”

 

Hong Kong Monetary Authority
19 May 2017

Last revision date: 19 May 2017
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