Refinancing of residential mortgage loans in negative equity

The Hong Kong Monetary Authority (HKMA) has today (Wednesday) issued a letter to all Authorized Institutions (AIs) stating that it would not object if AIs, should they judge it commercially desirable, were to depart from the 70% guideline in refinancing Residential Mortgage Loans (RMLs) for homeowners in negative equity.

The letter notes that AIs' ability to refinance existing RMLs under the current environment is being restricted by the existence of the 70% loan-to-value guideline for RMLs. However, it also points out that the 70% guideline remains generally appropriate as a long-term prudential measure, and will continue to apply to new RMLs (although the 60% guideline on luxury property will no longer apply).

"The purpose of the letter is to remove obstacles to authorized institutions which may wish to offer relief to homeowners in negative equity in the form of refinancing by means of introducing more flexibility in the loan-to-value ratio," said Mr Y K Choi, Acting Deputy Chief Executive of the HKMA.

According to the letter, refinancing RMLs should not exceed 100% of the current market value of the mortgaged property. The letter also reminds AIs to continue to adhere to normal prudent lending criteria, including those relating to the debt service ratio.

For further enquiries, please contact:

Caitlin Wong, Manager (Press), at 2878 1687 or
Thomas Chan, Senior Manager (Press), at 2878 1480

Hong Kong Monetary Authority
10 October 2001