New Hong Kong Mortgage Corp (HKMC) rules, which come into effect today, will boost property sales and reduce lending risk for banks, according to Standard & Poor's (S&P). The new rules mean buyers can make down payment of as little as 10 per cent of the value of a home. In the past, home-owners had to put down a minimum deposit of 30 per cent of a property's value. Deposits can now be as low as 10 per cent as long as the rest of the loan is insured. In a study, 'Mortgage Insurance: Alternative Credit Enhancement for Hong Kong Mortgage-Backed Securities?', analysts for the international credit-rating agency found the new mortgage insurance scheme will increase home-ownership in Hong Kong. 'Mortgage insurance has proven that it benefits all parties involved in mortgage lending,' said the report's author, S&P Hong Kong director Diane Lam. 'It provides a form of credit insurance for banks, and it helps banks underwrite more mortgage business by providing risk coverage on loans that do not conform to a bank's normal lending criteria.' But home-buyers hoping to make the minimum down payment to secure the maximum amount of credit will face insurance premiums of about 2 per cent to 3 per cent on their mortgages. The new mortgage insurance scheme allows home-buyers to sidestep a Hong Kong Monetary Authority (HKMA) rule that prevents banks from offering loans of more than 70 per cent of the value of a property. The HKMA rule is designed to protect banks from borrowers defaulting on home loans. Home-buyers had been lobbying the Government to reduce the mortgage ceiling, claiming it was impossible for many prospective buyers to bridge the deposit gap. In response, the HKMC last year increased the maximum amount of loan that it would insure to 85 per cent. Since the introduction of the 85 per cent mortgage insurance ceiling, 3,466 home loans worth HK$7.2 billion have been insured. Ms Lam said mortgage insurance schemes had proved successful in other countries with strong home-ownership cultures. 'In the United States and Australia, mortgage insurance is very common. The same trend will develop in Hong Kong,' she said. She said the lower down-payment required by insuring a higher percentage of the mortgage would enable consumers to purchase their own homes earlier. It would also boost banks' mortgage business. As banks' mortgage portfolios increase, they have more scope to pool the loans and repackage them into asset-backed securities to be sold in the debt markets. The sale of these securitised assets could improve the depth and liquidity of Hong Kong's bond markets. The HKMC was set up in 1997 to promote the development of the mortgage-backed securities market. Ms Lam said the mortgage insurance would allow insurers to share part of the risks facing banks, enhancing the credit quality of mortgage-backed securities transactions in Hong Kong.