The Hong Kong Monetary Authority (HKMA) announced today (Monday) the results of an updated survey on residential mortgage loans (RMLs) in negative equity with a number of banks active in mortgage financing for the position of December 2001.
Extent of RMLs in negative equity
From the information obtained from the survey, it is estimated that the total number of RMLs in negative equity was about 73,000 or 16% of total mortgage borrowers at the end of December 2001 (65,000 or 14% at end-September). The total value of RMLs in negative equity is estimated to be around HK$125 billion, or 23% of total outstanding RMLs (HK$127 billion or 23% at end-September).
While the number of RMLs in negative equity increased following further downward adjustments in property prices after the events of 11 September, the total outstanding amount in negative equity has not risen. This is due to a combination of factors, including: continued repayments of the loans by homeowners under the prevailing low interest rate environment, which has made debt servicing easier; pay-downs by customers who sought refinancing with other banks; and partial repayments by homeowners to obtain restructuring at lower interest rates.
"It is not surprising that the number of homeowners in negative equity has increased, given the further decline in property prices since the last survey. Despite that, the total outstanding amount in negative equity has not risen," said Mr David Carse, Deputy Chief Executive of the HKMA. "The increasing proportion of loans in negative equity being priced at below prime reflects the fact that the banks have been willing to refinance or restructure loans for homeowners in negative equity."
Pricing
The survey indicated that 56% of negative equity homeowners were being charged below the best lending rate (BLR), up from 51% at end-September. The average interest rate being charged to negative equity homeowners was 0.57% below the prevailing BLR, substantially lower than the average interest rate of 0.27% below BLR in the September survey (Annex).
Refinancing/Restructuring
The survey also indicated that there were some 2,500 RMLs in negative equity estimated to have been restructured or refinanced in the fourth quarter of 2001. About three-quarters of the loans restructured by banks had interest rates reduced. Of the refinanced loans, 93% of the homeowners were refinanced at lower than 1% below BLR, and 52% at lower than 2% below BLR.
It is estimated that during the period from October to December 2001, 51% of applications for refinancing of RMLs in negative equity from other banks at a loan-to-value ratio in excess of 70% were successfully refinanced and 27% of applications for restructuring of RMLs in negative equity with banks' own customers were successfully restructured, with better mortgage terms.
Average loan-to-value ratio
Based on the results of the survey, the average loan-to-value ratio of the aggregate portfolio of RMLs in negative equity is estimated to be 125% at end-December.
Co-financing loans
The HKMA is aware of some 20,000 RMLs (involving HK$31 billion) associated with co-financing schemes with the private sector (e.g. property developers) at end-December that have not been included in the overall figure of 73,000 cases in negative equity. However, the HKMA is not in a position to tell how many of these 20,000 loans would be in negative equity if the customers' total mortgage obligation were to be taken into account, because banks do not have information on customers' outstanding liabilities under the second mortgage.
The HKMA has also been advised that there are some 66,000 RMLs associated with Government-funded co-financing schemes. The extent of negative equity on these loans or the extent of inclusion of such cases in the 73,000 RMLs in negative equity is currently not known. The HKMA is revising its regular survey form and hopes to have more information on this in due course.
Hong Kong Monetary Authority
18 March 2002
Annex
Survey on residential mortgage loans in negative equity
Interest rate breakdown of residential mortgage loans in negative equity
BLR = Best lending rate
