Big rises announced by the government last week in the income and asset caps for applicants seeking to buy subsidised housing will create a new market for insured home loans, say analysts.
The change will mean many more individuals and families who may not have enough savings to put down a 30 per cent deposit on a home purchase in the private secondary market will be able to buy an HOS home, said Poon Kwok-yuen, managing director of QBE Mortgage Insurance (Asia).
To assist such buyers and give lenders some security to provide loans of up to 90 per cent on the value of a home, the government set up a Mortgage Insurance Protection Scheme in 1999.
Under the scheme, a buyer may put down a deposit of just 10 per cent on a home purchase. If a mortgage goes into default, the insurance covers a loss of principal on the mortgage loans above 70 per cent up to a maximum of 90 per cent of the property value at the time the loan was taken out.
With home sales on the decline - the latest data showed 12 housing estates recorded zero deals last week - banks are now likely to turn to the expanded HOS market for insured loans, said analysts.
The QBE Mortgage Insurance group has entered into partnerships with Hang Seng Bank, Standard Chartered Bank and Fubon Bank to offer mortgage insurance on home loans.
"Negotiations with other banks are under way," said Poon. He said the approval requirements and the premium charges for its mortgage insurance products were the same as the conditions applied by the biggest provider of mortgage protection insurance, the Hong Kong Mortgage Corporation (HKMC).
According to the latest figures from the HKMC for the year to September 11, the value of loans drawn down under its mortgage insurance programme amounted to HK$15.91 billion.
The average usage rate - or market drawn down amount - was 12 per cent.
The figures show that 96 per cent of applications for mortgage insurance products were for secondary market properties, the HKMC noted, which showed that mortgage insurance played a crucial role in supporting sales in the secondary market. Stanley Ku, senior vice-president and head of consumer finance at Fubon Bank, said the bank hopes to double its mortgage insurance products to 10 per cent of the bank's total loan portfolio from a present five per cent.
"The property market will be dominated by end-users [next year] and we have to come out with a strategy to meet changed market demand," said Ku.
The bank would focus on extending mortgage loans ranging in value from HK$2.5 million to HK$3 million, he said.
QBE's mortgage insurance products cover both primary and secondary property markets, including village houses, Home Ownership Scheme flats and flats in estates over 30 years old.
According to the HKMC the total premium payable on a mortgage insurance protection scheme is HK$191,700 or 3.55 per cent of a loan of up to HK$5.4 million with a 30-year tenure.
Together with the monthly mortgage instalment, the flat buyer in such a case will face a total payment of HK$21,089 per month.