Homebuyers may face tougher mortgage stress test

Homebuyers could face a tougher stress test on interest rates to screen out people who cannot afford loan payments when rates rise, a top banker says.

Miranda Kwok, the chief executive and president of China Construction Bank (Asia) in Hong Kong, said a tougher stress test would be an option for the regulators if the government got worried about the long-term ability of homebuyers to make their mortgage payments as property prices kept rising.

The Monetary Authority, the city's de facto central bank, has already rolled out five rounds of measures to rein in the soaring home prices.

As property prices keep rising, commercial banks are anxious about when the sixth, which is likely to include a tougher stress test, will come. If such a measure is taken, people may find it more difficult to get mortgages from banks.

A person applying for a mortgage loan now has to pass a stress test showing his or her ability to meet payments should interest rates rise 2 per cent.

Kwok suggested that a more prudent way to screen out buyers at risk of defaulting on mortgages would be to raise the threshold to "3 or 4 per cent".

HKMA chief executive Norman Chan Tak-lam has warned interest rates may bottom soon.