A rising ratio of problem mortgages has the Hong Kong Monetary Authority (HKMA) warning banks to be cautious about lending policies. The loan-delinquency ratio - the ratio of mortgage loans overdue for more than three months to total outstanding mortgage loans - climbed to a record 1.27 per cent last month from 1.23 per cent in June. Despite the declining quality of the loans, the figures showed banks were continuing their year-long mortgage price war - offering low interest rates to build up their mortgage loan books. The authority said 83.2 per cent of the loans granted last month were at an interest rate of 1.5 per cent below the best lending rate for the whole term of the mortgage, up from the 80.7 per cent in June. Before the mortgage price war began most banks were offering mortgage loans at 1.75 per cent above the best lending rate. 'Keen competition for new mortgage business persisted, as evidenced by some banks offering mortgage rates at a new low of prime minus 2.25 per cent recently,' HKMA acting deputy chief executive Choi Yiu-kwan, said. 'Banks should ensure that they have carefully considered the funding costs and implications for their profitability.' The authority said the value of new loans taken up last month dropped by 0.3 per cent to HK$10.1 billion, after rising by 3.8 per cent month on month in June. However, the value of new loan approvals last month rose by 6.1 per cent to HK$13.1 billion, compared with a drop of 7.1 per cent a month earlier. The HKMA said the growth in the new mortgage loans approved was mainly due to a pick-up in primary loan approvals. Refinancing loans fell in absolute terms for the second consecutive month. They accounted for 30.5 per cent of last month's approvals - a marked decline from 50.7 per cent in June. Loans approved during the month but not yet drawn - usually drawn by borrowers in the following month - were up 5.3 per cent to HK$10.4 billion from HK$9.8 billion in June. The average loan-to-value ratio of new loans approved rose to 58.9 per cent last month from 57.3 per cent in June. The average mortgage terms increased to 17.1 years from 16.5 years in June. Of these loans, 99.4 per cent were for owner-occupied properties. Gross loans to buy mainland properties fell by 18.7 per cent to HK$167 million last month from June's HK$206 million.