The city's monetary authority has told banks to further tighten lending to buyers of luxury homes and investment properties on concern surging prices are getting out of hand.
The Hong Kong Monetary Authority has issued a circular to banks telling them to cut mortgage lending available to luxury-home buyers and property investors to 60 per cent of a property's value from the current 70per cent. The tighter lending rules will apply to properties priced at HK$12 million or more and those not for self-use. The same measures have applied to property valued above HK$20 million since last October.
'As property prices continue to rise sharply, the risks of residential mortgage loans are increasing,' said Norman Chan Tak-lam, the chief executive of the HKMA. 'Since mortgage loans constitute a major part of banks' loans, there is a need for the HKMA to introduce these measures to ensure the banks are managing their risks prudently.'
For the first time, the authority has tightened mortgage loans for investment property. Regardless of the price, banks can only lend 60 per cent of the value of these properties to the borrowers. Homebuyers will have to declare whether their property is for self-use or for investment.
Banks must limit the amount they advance to borrowers to ensure they do not spend more than 50 per cent of their household income on mortgage repayments. The current limit is 60 per cent.
Banks will also make sure borrowers would not have to pay 60 per cent of their income on repayments in the event of interest rates rising two percentage points.
Chan said the affordability test was to prevent borrowers overstretching themselves.