HKMC to launch premium loan guarantee scheme

Scheme will guarantee to banks of up to 70% combined loan-to-value threshold of the premium loan.

The Mortgage Corporation will launch the Premium Loan Guarantee Scheme to complement the Government's initiative on revitalising the Home Ownership Scheme secondary market.

Serving as a market-based solution, the scheme will provide an alternative platform for Home Ownership Scheme owners to finance their premium payment to the Housing Authority via the creation of a second mortgage loan - a premium loan - with their first mortgagee banks in addition to their first mortgagee loans. The owners can then repay the premium loan by instalments to banks, according to an HKMC report.

Under the scheme, the corporation will provide guarantee to the banks on the portion of the premium loan that is over the 60% or 70% combined loan-to-value threshold and up to 90%, i.e. the "covered amount".

If the flat will continue to be owner-occupied after drawdown of the premium loan, the covered amount will start from 70% combined loan-to-value threshold. If the flat is not to be owner-occupied, the covered amount will then start from 60% combined loan-to-value threshold. In any case, the authority's mortgage default guarantee on the first mortgage loan will not be affected.

Home Ownership Scheme owners participating in the scheme are required to pay an annual guarantee fee for a maximum of three years via their mortgagee banks. When an owner has paid off the covered amount in the premium loan, subsequent annual payment(s) of guarantee fee, if any, will no longer be required.

The Transport & Housing Bureau welcomed the new scheme. In a statement issued on Monday, the bureau said the premium loan guarantee scheme by the corporation was one of proposals discussed in May and July this year by the Subsidised Housing Committee of the Housing Authority.

Once the owners obtain the loan and pay the premium to the authority, their flats will be freed from alienation restrictions.

The bureau said the scheme aims to provide Home Ownership Scheme owners with an alternative option without spurring property prices. Owners who wish to pay the premium ahead of disposal of flats are expected to benefit from the scheme.

At present there are more than 320,000 flats under the Home Ownership Scheme. More than 65,000 are flats with the premium paid and 255,000 are flats with the premium not yet paid.

The former can be sold on the open market readily while the latter can be sold on the Home Ownership Scheme secondary market and on the open market after paying the premium.