China mortgage rules tightened to curb people divorcing to qualify to buy second homes

Central bank orders stricter control of mortgage applications to rein in soaring property prices, including tougher rules on divorcees buying second apartments

PUBLISHED : Friday, 24 March, 2017, 11:35am
UPDATED : Friday, 24 March, 2017, 11:33pm

China’s central bank, wary of soaring property prices in Beijing, said on Friday banks must strengthen mortgage risk management, and that includes cracking down on home buyers rushing to get divorced to skirt second-home purchase rules.

Growth in prices of Beijing homes in the resale market was the third-fastest among Chinese cities in February, according to the latest official data, mostly driven by speculators.

People who have been divorced for less than a year should not qualify as first-home buyers and banks should not extend property loans to such individuals under first-home policies, the People’s Bank of China said.

Guangzhou, four cities follow Beijing’s lead to curb home purchases

Local media reported in October a similar measure was introduced in Shanghai, but the ban only applied for those divorced within six months.

The Beijing municipal government last week imposed an unprecedented series of curbs, including hiking the minimum down payment ratio on second-home purchases to as high as 80 per cent. It kept the rule on first-home buyers unchanged. First-home buyers need only pay a minimum of 35 per cent.

However, under those rules, a husband or wife who walk away from the marriage without a home or mortgage record can still buy a home as first-time buyers. Friday’s announcement effectively closed that loophole.

“Recently there have been more households that use divorces to enjoy first-home mortgage policies,” the Beijing operations office of the central bank said in a notice posted on its website.

“This has not only affected policy effectiveness, but will also lead to problems such as financial disputes and add to credit risks borne by commercial banks.”

Some divorce lawyers were concerned that the central bank’s policy may affect genuinely divorced couples.

“It’s not right to casually launch a measure that would severely interfere with people’s livelihoods. What happens to genuinely divorced couples without homes? Did they care about their pain?” said a mainland divorce lawyer surnamed Zhu.

Fang Jie, a partner at Shanghai Yingdong Law Firm, said the measure would inevitably have a collateral impact on genuine divorcees.

“The [policymakers] did not differentiate because they have no means to tell which is which.”

Friday’s measure also tightened the definition of a first-time home buyer to mean not just someone who did have not a present mortgage under their name, but who has not had a mortgage in the past.

China’s heated land market is reaching boiling point

The city government has already tightened last week’s curb on Wednesday by announcing non-local buyers could not buy a flat in Beijing unless they have paid social security contributions and taxes for not less than 60 months. Before that, the threshold was 60 months of social security payments, or at least one tax payment a year for five years.

Under the central bank guidelines for Beijing, effective immediately, banks also have been told to strictly check the source of down payments from individuals buying property, carefully assess the ability of borrowers to repay loans and improve the value of their residential property.

Borrowers cannot secure a loan if the monthly mortgage burden exceeds half of their monthly income, according to Friday’s announcement.

The central bank and the Beijing branch of the banking regulator would conduct regular inspections and spot checks on how the measures were implemented by banks, the notice said, stressing that lenders that broke the rules would be “dealt with severely”.

Additional reporting by Reuters