White Collar

Opinion: HKMA’s mortgage curbs doing nothing to make property more affordable

If the government really wants to cool house prices, it needs to take an altogether more radical approach than simple mortgage limits

PUBLISHED : Monday, 22 May, 2017, 3:55pm
UPDATED : Monday, 22 May, 2017, 11:02pm

The Hong Kong Monetary Authority (HKMA) introduced its eighth round of mortgage tightening rules since October 2009 at the end of last week, and it seems highly likely a ninth round will follow shortly.

But while the curbs have done little to stop home prices from rising, the continued action by the HKMA has certainly introduced better safeguards for the banks from taking on too much risk.

All the curbs so far have been aimed at limiting the amount banks can lend mortgage borrowers, and from a banking regulator point of view, they are working well.

The eight rounds have also helped to create a healthier-looking loan book, with the mortgage delinquency ratio remaining unchanged at 0.04 per cent in March this year, compared with 0.05 per cent in September 2009. The rescheduled mortgage loan ratio is also practically zero, compared with 0.11 per cent back then.

The seven years of tightening have also improved the banks’ loan book.

From the mortgage borrower’s points of view, however, the measures are not good news, as they are now getting less money out of the banks.

The average loan-to-value ratio for new residential mortgage loans dropped to 51 per cent in March, from 64 per cent in September 2009, before the first round of measures was introduced the month later.

As for homes prices, seven years of curbing measures has done nothing to stop them getting hotter .

The Centra-City Leading Index, which has been tracking home prices in Hong Kong on a weekly basis, since 1994, rose to 156.44 on Friday when the HKMA announced its eight round of mortgage tightening measures, compared with 66.8 per cent when the authority announced the first round in October 2009. The index started from a base figure of 100 in 1997.

The reason the measures have had such a feeble impact on rising prices is partly down to which sector they are being targeted at.

The first round was targeted at luxury homes. Residential properties valued at HK$20 million or more, had their loan to value ratios capped at 60 per cent, down from normal 70 per cent. But that failed completely to arrest prices, as the richest don’t need mortgages.

The latest measures announced by the HKMA last Friday are targeted at borrowers with multiple loans, and those who derive the majority of their income from outside of Hong Kong.

Loans for residential property valued at less than HK$10 million have been cut to 50 per cent of their value, for borrowers with outstanding mortgages, from 60 per cent.

For borrowers who mostly derive their income from outside Hong Kong, debt servicing ratios have been cut by 10 percentage points to 40 per cent for first-time borrowers, and 30 per cent for those with prior mortgages.

But again, eight rounds later, they are unlikely to hurt many property buyers as we are still dealing with those rich enough not to need a loan.

If the government really wants to cool house prices, it needs to take an altogether more radical approach than simple mortgage curbs.

How about, for instance, relaxing the rules to help first-time buyers borrow more to buy their own home?