OVER the past year, the Hong Kong Monetary Authority's 70 per cent maximum mortgage lending guideline to banks has increasingly become a farce. It has reached the stage where so many developers are offering top-up financing of 10 to 20 per cent that almost no one looking to buy a flat in one of the territory's new developments needs to come up with the full 30 per cent down payment. In a desperate attempt to lure sufficient buyers, the privately-run Nan Fung Development even offered top-up packages to 100 per cent on apartments in four of its projects. There are so many exceptions to the rule, many would argue that the rule should be declared obsolete, or at least relaxed. The Monetary Authority, however, stubbornly insists the 70 per cent ceiling is here to stay - for the foreseeable future, at least. Lobby groups, including those representing developers and estate agencies that have been severely hit by the property market, have proposed relaxing the ratio by an initial five or 10 per cent to 75 per cent or 80 per cent to see how the market reacts. Some banks have openly said the 70 per cent ceiling has had its day. Naturally, they have vested interests. Their profits have been hurt by the Government-initiated cyclical decline in the territory's real estate markets. First-time buyers and end users have also been none too pleased. Finding a 30 per cent deposit, which in many cases amounts to more than $1 million on a modest-sized flat, has proved to be beyond the resources of most. The mortgage lending ratio, together with the Government's clampdown on pre-sales and resales of apartments long before completion, have been the two major driving factors in dragging the Hong Kong property market down. David Carse, the Monetary Authority's deputy chief executive (banking), does not see it that way. 'We are looking at it from the position of protecting the best interests of the banks,' he said. The voluntary ceiling, by which the territory's big banks are pressurised to abide, was originated with the good intention of preventing banks from becoming over-exposed to mortgage lending at a time when the local property market appeared to be raging out of control. The Monetary Authority had seen the bubble burst in Japan with ghastly consequences and had pledged to do its utmost to prevent the same from happening here. The ceiling did a lot to help bring down prices. But that was not its prime intention. Its purpose was to protect Hong Kong's banks and in that vein it has been unpopular but very successful. Banks had previously been told to keep their exposure to the potentially lucrative property market within 40 per cent of their total loan portfolios to prevent them from becoming over-exposed. With annual profits in mind, this, too, had been a bone of contention for some banks. Despite frequent protests from many quarters, Mr Carse said that relaxing the lending ratio is still even on the agenda for talks. He realises developers are openly borrowing from banks to offer their customers top-up loans but says this is something the Monetary Authority is going to have to live with. 'We cannot police that in a precise manner,' Mr Carse said, arguing that it was better to have the 70 per cent ceiling and developers offering top-up financing than to drop the restriction and let banks loose on a free-for-all. 'It is better to have it [80 and 90 per cent combined mortgage lending] in a relatively controlled manner,' he said. Analysts see the impact of retaining the 70 per cent ceiling as more psychological than anything. Because it served such an important part in driving speculators out of the housing market and bringing down prices, it is feared the formal lifting of the ceiling could be read by them as a signal to leap back in. The Monetary Authority and the Government are loathe to see prices rocketing up again, thus undoing all their hard work. Analysts see the 70 per cent ceiling as a weapon the Monetary Authority can only afford to use once. They say it would look daft if it relaxed it only to reinstate it a few months later. Equally farcical seems to be banks' standard mortgage lending rate of 1.75 per cent over prime. Keen competition has resulted in an all-out price war in the mortgage loan business. Hongkong Bank pulled the trigger in mid-August, allowing branch managers to offer discretionary discounts of 25 to 50 basis points on mortgage rates to preferred customers. Hang Seng Bank swiftly followed by offering 25 basis point discounts to a wide variety of its customers. Other banks followed. It has now reached the point where almost no new mortgage taker needs to pay the advertised full 1.75 per cent over prime that is advertised. Both the 70 per cent mortgage lending ratio and 1.75 per cent over standard prime mortgage lending rate are looking increasingly meaningless in today's highly competitive residential lending environment.