Hong Kong tightens screw on borrowers of multiple loans as property market overheats

Hong Kong has announced the second set of mortgage-tightening measures in a week to cool a property market that has broken records, taking aim at borrowers with multiple loans and whose income sources come from outside the city in an attempt to reduce banks’ credit risks.

The move comes as the city’s end-March property prices and transactions surpassed a September 2015 peak by 4.5 per cent, the HKMA said, citing data by the Rating & Valuation Department. The city’s de facto central bank has unveiled eight rounds of tightening measures since 2014.

“The long term sustainability of the interest margins on mortgage lending has been under growing pressure,” said the HKMA’s chief executive Norman Chan Tak-lam. That means “less capital can be generated from this line of business, weaking the ability” of banks “to cope with a possible market downturn,” he said.

The authorities have focused on using prudential measures such as caps on loans, and adjusting the debt-servicing ratios and stamp duties. Residential mortgage loans totaled HK$1.119 trillion (US$144 billion) at the end of 2016, equivalent to 5 per cent of the banking system’s assets, a level that is considered low by international standards, according to Fitch Ratings.

Housing affordability is one of the gravest issues facing Hong Kong’s incoming chief executive Carrie Lam Cheng Yuet-ngor, who has pledged to take strong measures to address the issue. The government in November 2015 imposed a 15 per cent stamp duty on second-time borrowers, while the HKMA last week ordered banks to reduce loans to developers.