The Hong Kong Monetary Authority (HKMA) issued today (Friday) guidelines to banks on a new round of supervisory measures on property mortgage to strengthen banks’ risk management and resilience. The measures are as follows:
First: The maximum loan-to-value (LTV) ratio for self-use residential properties with value below HK$7 million will be lowered by a maximum of 10 percentage points. For example, the maximum LTV ratio applicable to properties with value at HK$6 million or below and subject to the LTV cap of 70% will be lowered to 60%.
Second: The maximum debt-servicing ratio (DSR) for borrowers who buy a second residential property for self-use will be lowered to 40% from 50%, and the stressed-DSR cap will be lowered to 50% from 60%.
Third: The maximum DSR of mortgage loans for all non-self use properties, including residential properties, commercial and industrial properties and car park spaces, will be lowered to 40% from 50%, and the stressed-DSR cap will be lowered to 50% from 60%.
The above three countercyclical measures take immediate effect. However, mortgage applications for properties with provisional sale and purchase agreements signed today or earlier will not be affected.
Besides, when the HKMA introduced the sixth round of countercyclical measures in February 2013, it also required at the same time that banks using the Internal Ratings-Based (IRB) Approach for managing their credit risks should introduce a risk-weight floor of 15% for their residential mortgage portfolios. It was decided at the time that to facilitate these banks in adapting to this requirement, the 15% risk-weight floor was only applicable to new residential mortgage loans (RMLs).
The HKMA has recently reviewed the measure, and decided to require banks adopting the IRB Approach to extend, by end-June 2016, the risk-weight floor to 15% across the board for RMLs approved before February 2013 and, by end-June 2015, to 10% for these RMLs. The relevant measures are on-going risk management arrangement.
Mr Norman Chan, the Chief Executive of the HKMA, said, “The property market in Hong Kong became buoyant again in the second half of 2014, with notable increases in prices and transaction volume, particularly the small- and medium-sized residential units. Moreover, the household debt-to-GDP ratio also continued to increase to a historic high level of over 64%. In view of this, the HKMA considers it necessary to introduce new countercyclical measures to safeguard the stability of the banking and financial system.
“The HKMA appreciates that the new measures will inevitably affect some of the users and first-time home buyers. Hence, the HKMA has always strived to achieve a balance between the need to tighten countercyclical measures to protect banking stability and the desire to minimise negative impact on genuine end-users, especially the first-time home buyers when introducing these measures. However, it is the duty of the HKMA to introduce further measures to safeguard the stability of the banking and financial system given the renewed signs of overheating in the property market, particularly the small-sized residential units.”
“The HKMA reminds prospective buyers to take into account the relevant risks, particularly the impact of a potential property market or economic downturn or interest rates rise on their repayment ability and avoid overstretching themselves.”
Hong Kong Monetary Authority
27 February 2015