Hong Kong tightens mortgage loan guidelines

It unveiled three new measures that will take effect immediately.

The Monetary Authority issued new guidelines on property mortgage loans to strengthen banks’ risk management and resilience. For banks using the Internal Ratings-Based Approach to calculate capital charges for credit risk, the risk-weight floor for new residential mortgage loans granted after today will be raised from 15% to 25%.

For property mortgage loans extended to borrowers with pre-existing mortgages, the applicable loan-to-value ratio cap will be lowered by 10%.

For borrowers who earn their income from outside Hong Kong, the applicable debt servicing ratio limit for their property mortgage loans will be lowered by 10%.

The three new measures will take immediate effect.

Mortgage applications for transactions with provisional sale and purchase agreements signed today or earlier will not be affected.

The authority's Chief Executive Norman Chan said rising transactions and keen competition for mortgage business in the banking sector have increased the risk of the property market overheating, weakening the resilience of banks to cope with a market downturn.

"According to the latest statistics of the Rating & Valuation Department, property prices in March surpassed the recent peak recorded in September 2015.

"Transaction volume for residential properties has increased by more than double from about 3,300 in January 2017 to about 7,000 in April.

"Given these developments, the authority considers there is a need to introduce new measures to strengthen the risk management of banks."

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