HKMA explains purpose of the 70% loan-to-value guideline on residential mortgages

In the light of the recent debate on the 70% loan-to-value ratio on residential mortgage lending by authorized institutions, the Hong Kong Monetary Authority (HKMA) today stressed that the guideline was not intended to prevent homeowners from borrowing more than 70% of the value of their property. "There are already products available that make it possible for home purchasers to borrow a much larger percentage of the value of the property," a spokesperson for the HKMA said. "These include the Hong Kong Mortgage Corporation's (HKMC) mortgage insurance programme, which enables home buyers to secure mortgage loans of up to 90% loan-to-value ratio, and co-financing schemes offered by developers and other organisations," the spokesperson added.

Currently, more than 12,000 homeowners are participating in the HKMC's mortgage insurance programme. In addition, more than 90,000 homeowners are estimated to be participating in co-financing schemes.

The spokesperson explained that the purpose of the 70% loan-to-value guideline was to help reduce the impact on the banking industry of fluctuations in property prices by ensuring that banks did not assume more than 70% of the risk of any residential mortgage. "Banks can actually lend up to 90% loan-to-value ratio provided that the portion above 70% is insured," the spokesperson said. The spokesperson added that the guideline had been effective as a prudential measure for maintaining stability in the banking system during a period of extreme volatility in property prices.

The spokesperson said that the 70% loan-to-value ratio originated as an initiative taken within the banking industry, and was subsequently adopted by the HKMA as a guideline for the whole industry in the interests of ensuring a level playing field. "We believe that the guideline continues to command broad industry support. There is no plan to change the guideline," the spokesperson said.

For further enquiries, please contact:
Sylvia Yip, Manager (Press), at 2878 1687 or
Thomas Chan, Senior Manager (Press) at 2878 1480

Hong Kong Monetary Authority
15 November 2002