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.