Mortgage insurer extends coverage; end of 95pc loans
Limit raised to 30pc of purchase price amid tighter lending policies
The Hong Kong Mortgage Corporation has extended its insurance coverage in response to banks' tighter lending policies but has introduced a new rule that in effect brings the days of 95 per cent home loans to an end.
The corporation said yesterday that from next Thursday it would extend its coverage limit to 30 per cent of the purchase price from the present 25 per cent.
At the same time, however, it will require buyers to put down a deposit of at least 10 per cent.
It has also raised its premiums, shortened the allowable term of the mortgage and tightened its debt-to-income ratios that govern how much buyers can actually borrow.
Before the credit crunch, banks were lending up to 70 per cent at first and buyers could borrow an additional 25 per cent with the corporation's coverage, meaning they needed only a 5 per cent down payment.
But as credit tightened many banks have been unwilling to lend more than 60 per cent, leaving the corporation's coverage limit too tight to close the gap.
The corporation said yesterday it had extended its limit to keep pace with banks' tougher lending rules.
It will start to accept applications under the new plan from Thursday.
Corporation chief executive James Lau said he expected the move would help potential buyers borrow money even after the banks had tightened lending on properties.
To cut down the risk of overleveraging, the maximum loan amount has been capped at HK$8 million, down from the existing HK$12 million and the maximum term has been shortened from 40 years to 30 years.
And, the corporation has reduced the maximum debt-to-income ratio from 50 per cent to 45 per cent for buyers with monthly household income below HK$60,000 a month, meaning their repayments should be no more than 45 per cent of their income. For those earning more than HK$60,000, the ratio has been lowered from 60 per cent to 50 per cent.
Joseph Yam Chi-kwong, deputy chairman of the corporation and chief executive of the Monetary Authority, said the new arrangements 'can help to lessen the impact of the credit crunch in the mortgage financing market on potential homebuyers. It also provides banks with a greater degree of flexibility in conducting mortgage business.'
Ricacorp Mortgage associate director Wong Wing-yan said the problem of tighter bank lending became serious in October.
Louis Chan Wing-kit, managing director of Centaline Property Agency's residential department, said that as a result many potential homebuyers had become hesitant.
According to the Land Registry, home sales had dropped to 3,786 last month, the lowest in 17 years. This is down steeply from 18,105 at the same time a year ago.
Hendrick Leung Lee-chung, director and general manager at Centaline Finance, expected mortgage applications to increase 20 per cent from the level of the last two months after Hong Kong Mortgage Corporation released the plan.