Hong Kong to introduce reverse mortgage scheme

Survey says 44% of respondents supported the introduction of reverse mortgages in Hong Kong.

The Hong Kong Mortgage Corporation plans to introduce a reverse mortgage pilot scheme, Acting Secretary for Financial Services & the Treasury Julia Leung says, adding it will strike a balance between seniors’ needs and risks to the banks.

Speaking in the Legislative Council on Wednesday, Ms Leung said the scheme will give seniors a choice, to use their properties as collateral for reverse mortgage loans from banks, giving them a fixed cash loan amount each month, either for a fixed period or over their lifetime, according to a government report.

This can supplement their income to improve their standard of living while allowing them to live in their properties for the rest of their lives.

The corporation will strike a balance between seniors’ needs and the risks to the banks - as well as itself, as insurer - when developing the details of the pilot scheme. By acting as the insurer, banks will be encouraged to explore this new market.

In a recent survey of 1,005 elderly people the corporation conducted, 44% of respondents supported the introduction of reverse mortgages in Hong Kong. Almost 25% of respondents indicated they would consider participating in them.

Unique circumstances
In designing the scheme, the corporation will consider overseas experience in reverse mortgages, and take into account Hong Kong’s unique circumstances. These include local property prices’ high volatility, increasing life expectancy in Hong Kong, and the possibility the extremely low interest rates will rise.

Professional surveyors will conduct property valuation under established procedures. The properties’ appraised value amount will affect annuity payment amounts. Once an annuity payment amount has been confirmed, it will not be reduced or suspended over the reverse-mortgage term.

At the end of the term, the property will be disposed of and any surplus after deducting the outstanding loan principal, accrued interest, insurance premium and other applicable fees from the proceeds will be given to the seniors’ estate.

If the property-disposal proceeds cannot cover the outstanding loan balance, the corporation will cover the shortfall to the banks so that seniors and their families will not have to bear the burden.