The devil is in the details of Hong Kong’s relaxed mortgage rules【星之谷專欄－南華早報】

【星之谷專欄－南華早報】早前我們在《南華早報》撰文，分析新按揭成數計劃，魔鬼在細節:

• The new measure is considered to be a “godsend” for first-time homebuyers
• Double-income households can now afford to buy larger flats, compared with the nano flats they could only afford previously

The Hong Kong government announced last Wednesday to relax the cap on the property value eligible for a mortgage loan with a maximum cover of 80 per cent loan-to-value (LTV) ratio from HK$6 million to HK$10 million (US$1.27 million). For mortgage loans up to 90 per cent LTV ratio applicable to first-time homebuyers, the maximum property value is fixed at HK$8 million, going up from the previous HK$4 million.

The new measure is considered to be a “godsend” for first-time homebuyers. Let’s take a two bedroom flat of Whampoa Garden, a well-recognised middle-class estate currently valued at around HK$7 million, as an example.

Originally, homebuyers should be paying HK$2.8 million as down payment. However, after the new measure comes into effect, it will require merely HK$700,000 to become a homeowner in such a blue chip estate, while this amount was previously barely enough to buy a nano flat in the New Territories.

Based on an effective mortgage rate of 2.625 per cent on a 30-year loan, the monthly mortgage payment amounts to around HK$25,000, which is quite affordable for a two-income household.

Best of all, homebuyers used to spend up to half of their monthly income on mortgage payment and before that, they have to pass the bank stress test. Under the new measure, the stress test can even be waived.

However, one should not quickly jump on the bandwagon and rush to buy just because the dream house now becomes more affordable. Let me discuss the new plan at length as both the devil and the angel are in the details.

Firstly, according to the government-backed HK Mortgage Corporation (HKMC), the stress test waiver only applies to first-time homebuyers. The definition of first-time homebuyers does not literally refer to his/her first time of buying a property. It means that the buyer is not currently owning another property. If the borrower sells his/her existing property and buys a new one, he/she will still be qualified as a “first-time buyer”, even if the sale of the first property is yet to be completed.

However, there is a lesser-known requirement. If the borrower does not have sufficient income to fulfil the 50 per cent debt-to-income ratio (DTI), he/she is required to have a guarantor, and if the guarantor has an existing mortgage, HKMC will still apply the stress test for mortgage approval.