Regulators tighten mortgage rules

PUBLISHED : Wednesday, 12 December, 2007, 12:00am
UPDATED : Wednesday, 12 December, 2007, 12:00am

The People's Bank of China and China Banking Regulatory Commission said yesterday they would increase measures on property lending by tightening loan applications for households which already had an existing mortgage.

In a statement issued yesterday, the regulators said risks to property lending was increasing with lending growing too fast, excessive competition and too many infractions of regulations.

They said the mainland should learn from the property crises in Hong Kong and Japan and especially the credit crisis in the United States.

However, analysts said yesterday's statement only helped clarify a policy that was announced in September and would have little effect on the market.

In September, the central bank raised the required down payment for a property to 40 per cent from 30 per cent generally, if the buyers already had a flat under mortgage. Interest rate for the mortgage would be 1.1 times the normal rate for those buying second flats.

However, at the time it was not specified if buyers were counted as individuals or households and left the decision to banks.

However, in yesterday's announcement, it said buyers would be counted as households.

The central bank yesterday also clarified rules on residential mortgages that will make it easier for families living in small flats to buy a second home. Families will be exempt from the higher down payment and mortgage rate if the average living area per resident falls below the city's average. The announcement did not say if there was any limitation for those enjoying the privilege.

'The impact on the market is minimal as it had been widely expected by the market. It is just a clarification on top of the previous policy,' said Raymond Cheng Wai-mo, an analyst at CCB International Securities.

Mr Cheng said the clearer rules could only be of benefit to the market.

The stricter measures would also help to curb the overheated market and reduce speculative activities, while the special terms can answer the housing needs of lower-income and middle-class families, he said.