Hong Kong's sagging property market got a shot in the arm yesterday with news home buyers may deposit 10 per cent of a property's value and borrow the remainder from their banks. The 90 per cent mortgage loans will become possible with the extension of the Hong Kong Mortgage Corp's (HKMC) mortgage insurance programme. The new scheme will be launched before the end of August. Developers and property agents reacted instantly, lining up banks to provide 90 per cent mortgages for new and second-hand homes. Most hailed the move, saying it would give the market a psychological boost, but few expected a substantial impact on prices. Estate agent Midland Realty said at least six banks had verbally agreed to provide 90 per cent loans for second-hand homes, although details had to be finalised. They included Chase Manhattan Bank, American Express Bank, DBS Kwong On Bank, Union Bank, International Bank of Asia and Wing Hang Bank. Blue-chip developer Henderson Land Development said it would arrange banks to provide 90 per cent mortgages for 600 units at various developments in Tseung Kwan O and Tuen Mun. Realty Development Corp chairman Gonzaga Li Wei-jen welcomed the decision but said it would do little to help prices. 'The news will further improve market sentiment,' said Midland Realty executive director Victor Cheung, who said his company had received numerous inquiries about the measure. Property prices have languished since falling by about 50 per cent during the Asian financial crisis, hit by high unemployment, high real interest rates and an oversupply of subsidised housing. Officials last month scaled back the number of subsidised-flat sales but denied they were trying to revive the private property market. HKMC chief executive Peter Pang Sing-tong said yesterday a side-effect of the programme might be increased activity in the property market, but this was not a factor in making the decision. 'The core mission of the corporation is to promote home-ownership in Hong Kong, and one way to achieve that mission is to make home purchases easier for the home buyers, and mortgage insurance is one way of achieving that,' said Mr Pang. 'This is a product that is widely used internationally, and after looking at the market in the US and Australia we decided this was a good means to achieve that objective - provided the risk-management measures are adequate.' The HKMC launched its mortgage insurance programme in February last year, providing banks with insurance cover of up to 15 per cent of the value of a property against the loan. That allowed banks to lend up to 85 per cent of a property's value - above the 70 per cent mortgage ceiling imposed by the Hong Kong Monetary Authority. The HKMC will increase this insurance cover to 20 per cent of the value of a property, enabling banks to lend 90 per cent. The expanded scheme would mean greater risk for the HKMC, Mr Pang conceded, and as a result it would raise the eligibility requirements and premiums for borrowers electing to take the higher loan levels. HKMC data showed defaults on mortgage loans increased steeply as the loan-to-value (LTV) ratio rose. In the US, at 80 per cent to 82 per cent LTV, lenders experienced a default ratio of 1 per cent. But this increased to 4 per cent at an LTV ratio of 86 per cent to 88 per cent, 5.9 per cent when the LTV rose from 90 per cent to 92 per cent, and 7 per cent at 92 per cent to 94 per cent. Conditions for the increased insurance cover would include a maximum term for a 25-year loan and self-employed borrowers would not be eligible 'except for professionals such as doctors, lawyers and accountants', Mr Pang said. It also includes a compulsory credit check for lenders who use external credit agencies, and mortgage arrangements involving bridging loans would not be eligible. According to HKMA calculations the increased premiums charged for the higher insurance cover would add HK$356 a month to the cost of a 20-year loan of HK$1.5 million.