Cheap bank mortgages undermining attractiveness of government deals for first-time buyers
Benefits offered under the Government's Home Purchase Loan Scheme to first-time buyers are being eroded by repeated bank rate cuts.
The mortgage interest rate was reduced to three per cent yesterday after some local banks cut their prime interest rate to 5.5 per cent. This followed the US Federal Reserve's similar 0.5 percentage point cut in its key rate to 2.5 per cent on Tuesday.
It means the prevailing mortgage rate is half a percentage point lower than the Housing Society's Home Starter Loan Scheme, which offers families loans of up to $600,000 or 30 per cent of the flat price at a fixed rate of 3.5 per cent.
Housing Society vice-chairman Chan Bing-woon said the Government should review the interest rate to keep it in line with the private market.
'Otherwise, the Government will face criticism that the scheme is becoming more and more unrealistic and not in line with circumstantial changes,' he said.
Dr Eddie Hui Chi-man, associate professor of Polytechnic University's building and real estate department, predicted a fall in the number of applicants for the loan scheme and an increasing number of approved applicants dropping out.
'This phenomenon becomes more obvious as private developers are making offers that are increasingly competitive. It will be even more obvious upon further rate cuts in the coming two months,' Dr Hui said.
Second mortgage offers with interest-free repayment 'holidays' by private developers to lure customers to buy new flats also rendered the loan scheme less attractive.
For example, the developer of a newly launched project in Fanling offers a 25 per cent mortgage at 7.25 per cent on top of the 70 per cent bank mortgage. This mortgage carries an 18-month interest-free repayment holiday.
Buyers without government loans need pay only $120,000 more in interest payments than those with them, but they need to make a $100,000 downpayment.
For this they enjoy a longer 20-year repayment period and are free to lease or sell the property at any time. In the government scheme, buyers have to repay in 10 years and are barred from renting or selling in the first three years.
Midland Realty's executive director, Victor Cheung Kam-shing, said the Government should make the loan rate a floating one so it could constantly keep up with changing bank rates.
He suggested setting it six per cent below the prime rate.
A Housing Bureau spokeswoman said the fixed low-interest rate offered by the scheme provided the best stability and least financial risk for home buyers.
