The Hong Kong Mortgage Corp (HKMC) yesterday announced that four insurers had been approved to participate in its mortgage insurance programme which will allow home buyers to borrow up to 85 per cent of the value of a property. The scheme - to be launched next month - circumvents the existing 70 per cent loan-to-valuation cap by allowing banks to lend the additional funds which are then insured by the HKMC. The four insurers include three from the United States and one local company. The three overseas companies are General Electric Mortgage Insurance, United Guaranty Mortgage Indemnity - a subsidiary of American International Group - and PMI Mortgage Insurance - the third largest mortgage insurance company in the US. The local company is Hang Seng Insurance. Under the terms of the scheme, home buyers will have to pay an insurance premium of about $300 a month or a one-off $30,000 premium for borrowing the additional 15 per cent. HKMC chief executive Peter Pang Sing-tong said up to 41 banks would take part in the mortgage insurance programme and forecasts suggest 10 to 20 per cent of new mortgage borrowers will choose the new arrangement. He said the scheme should help boost turnover in the second-hand property market where no property developers offer top-up mortgage schemes. The scheme involves the HKMC buying a pooled insurance scheme through its appointed insurers to provide insurance cover for the 15 per cent top-up loan offered by the banks. This allows the banks to maintain their maximum 70 per cent exposure. In case of default, the insurance company will pay 105 per cent of the outstanding principal of the loan minus 70 per cent of the value of the property. The minimum credit rating requirement for qualifying insurers has been adjusted to A, in line with Hong Kong's sovereign credit rating. The minimum credit rating requirement for overseas incorporated insurance companies remains unchanged at AA. The corporation will continue to accept applications from other insurers. It is understood Asia Insurance and a consortium of local insurers are keen to participate in the scheme. 'The insurance payment scheme is cheaper than the cost of the schemes provided by the property developer or the overdraft facilities offered by banks,' Mr Pang said. Premium levels would be adjusted if the property price fell, he said. 'With the flexible payment methods, in particular the financing option, the mortgage insurance should be affordable to the majority of home buyers,' Financial Secretary and HKMC chairman Donald Tsang Yam-kuen said. Deputy Chairman of the HKMC, Joseph Yam Chi-kwong, added that the scheme would be targeted only at genuine home buyers. 'The borrowers will be required to certify on an annual basis that they continue to occupy the insured property as the place of residence,' he said. 'Banks will be required to report non-complying cases to the HKMC.' For non-conforming mortgages, the HKMC may increase the premium of the insurance to reflect the higher risk. The corporation also reserves the right to require the borrower through the lending bank to reduce the size of the mortgage and cancel the mortgage insurance.