Residential Mortgage Survey Results for Dec. 1996

Residential mortgage loans for the purchase of properties in Hong Kong continued to grow rapidly in December, according to the results of the latest monthly survey conducted by the Hong Kong Monetary Authority (HKMA).

In view of current market conditions, the HKMA has recommended that the maximum loan to value ratio for more expensive properties with a value of over $12 million should be reduced to 60%.

The latest figures show that the total amount of outstanding mortgage lending by the 33 institutions in the survey rose by 2.4% in December (1.8% in November) to $330.4 billion. (The percentage change has been adjusted to allow for the reclassification of loans by a number of institutions amounting to $2.9 billion during the month). The growth rate is higher than the monthly average of 1.6% over the last twelve months.

"The rapid growth in lending reflected the increased activity in both the primary and secondary residential property markets in November," said Mr David Carse, Deputy Chief Executive of HKMA.

The annualized rate of growth in lending over the last three months increased to 26.8% from 20.2% in the three-month period to November. The twelve-month average of outstanding loans showed an annualized growth rate of 18.9%, compared with 17.6% in November.

The amount of new loans approved but not yet drawn dropped from the already high base in November by 8.4% to $12.7 billion in December. "In view of the buoyancy of the residential property market and new flats offered to the market in early January, we expect the growth of residential mortgage loans will continue to rise quite rapidly in January," said Mr Carse.

"In the light of such factors as the acceleration of lending in recent months and the sharp rise in property prices, we believe that it would be sensible for institutions to reduce the loan to value ratio for the more expensive properties," Mr Carse added. "Some banks have already done this and it would be prudent for it to become general practice."

The effect of the HKMA's recommendation is that the loan to value ratio for residential properties with a value of over $12 million should be set at a maximum of 60%. However, to avoid an abrupt reduction in the amount which could be lent against properties which have a value of just over $12 million, the 60% requirement should be interpreted as meaning "the higher of 60% of value or $8.4 million". (This means for example that the amount which could be lent on a property valued at $13 million would be $8.4 million or 64.6%.)

Mr Carse also commented that the loan to value ratio should not be authorized institutions' only consideration. "Institutions must ensure that adequate regard is paid to borrowers' ability to service their debt," he said. "This is necessary to avoid borrowers overextending themselves, which increases the risk of default."

The amount of residential mortgage loans associated with co-financing schemes accounted for 3.8% of total mortgage lending of the 33 surveyed institutions at end-December. Of the $20.2 billion new loans approved during December, about 82.2% were accounted for by properties aged 15 years or below.

Lending for the purchase of properties in China increased by 4.4% to $6.3 billion in December. Gross loans made in December increased both in number (to 310 from 178) and in amount (to $401 million from $161 million). New loans approved in December decreased both in number (to 212 from 246) and in amount (to $157 million from $272 million).

Residential Mortgage Loans in Hong Kong
Results of Survey for Decemeber 1996

Note: ** Adjusted for the effect of re-classification of residential loans for a number of institutions amounting to $2.9 billion.

Hong Kong Monetary Authority
28 January 1997