Prudential Supervisory Measures for Mortgage Lending

Press Releases

10 Jun 2011

Prudential Supervisory Measures for Mortgage Lending

The Hong Kong Monetary Authority (HKMA) issued today (Friday) guidelines to the banks requiring them to implement the following measures to strengthen risk management in residential mortgage lending business:

(I) the maximum loan-to-value (LTV) ratio for residential properties with a value between HK$10 million and HK$12 million will be lowered to 50%. In other words, the 50% maximum LTV ratio introduced in November last year will be applicable to all residential properties with a value of HK$10 million or above.

(II) the maximum LTV ratio for residential properties with a value between HK$7 million and HK$10 million will be lowered to 60%, with the maximum loan amount capped at HK$5 million.1

(III) the maximum LTV ratio for residential properties with a value below HK$7 million will be 70%, with the maximum loan amount capped at HK$4.2 million.2

(IV) if the principal income of the mortgage loan applicant is not derived from Hong Kong, the applicable maximum LTV ratio will be lowered by at least 10 percentage points regardless of property types or values.

(V) the maximum LTV ratio for properties under the net worth-based mortgage will be lowered from 50% to 40%.

The above measures take effect immediately. However, loan applications in respect of property transactions with provisional sale and purchase agreements signed on or before 10 June will not be affected.

Mr Norman Chan, the Chief Executive of the HKMA, said “Since the introduction of a series of measures by the SAR Government and the HKMA in November last year, the property market has been volatile. Although the property market cooled down a bit in March and April this year, there are now signs of renewed exuberance following high transaction prices recorded in recent government land sale auctions. Not just the current property prices have exceeded their peak levels in 1997, interest rate risk is also much higher than that in 1997. The mortgage rates then were usually over 10% while the present mortgage rates are only around 1%. The present unusually low interest rate environment will not last forever.”

“The HKMA has all along required banks to be prudent and vigilant in managing credit risk. As the boom cycle in the property market continues to evolve, the risks associated with banks’ mortgage lending business increase correspondingly. There is therefore a continuing need for banks to enhance their risk management for their mortgage lending business. This is the fourth time the HKMA introduced countercyclical supervisory measures since October 2009. We will continue to monitor market situation closely and introduce appropriate measures as and when necessary to safeguard banking stability.”

Hong Kong Monetary Authority
10 June 2011

1 This is to avoid the anomaly that a purchaser of a property with a value slightly below HK$10 million could borrow a larger amount of loan than a purchaser of a property with a value slightly above HK$10 million. For example, a purchaser of a property valued at HK$9 million could borrow HK$5.4 million (HK$9 million x 60%), while a purchaser of a property valued at HK$10.5 million would only be able to borrow HK$5.25 million (HK$10.5 million x 50%).

2 This is to avoid the anomaly that a purchaser of a property with a value slightly below HK$7 million could borrow a larger amount of loan than a purchaser of a property with a value slightly above HK$7 million. For example, a purchaser of a property valued at HK$6.5 million could borrow HK$4.55 million (HK$6.5 million x 70%), while a purchaser of a property valued at HK$7.5 million would only be able to borrow HK$4.5 million (HK$7.5 million x 60%).

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Last revision date : 10 June 2011