HKMA eases mortgage loan limits, sparks concerns over property valuation risks

JLL said buyers face higher risks as the housing market is still in a downturn.

The Hong Kong Monetary Authority (HKMA) has provided banks with a guideline for a one-off special scheme to ease the supervisory requirements on the maximum loan-to-value (LTV) ratio and debt servicing ratio (DSR) limit for property mortgage loans.

This may, however, pose potential risks for buyers due to insufficient property valuations, according to Joseph Tsang, chairman of JLL in Hong Kong.

“Whilst these measures indeed help the buyers who bought uncompleted properties over the last few years with stage payment plans to secure mortgages and reduce part of their financial burden, it also carries risks,” Tsang said.

“When buyers spend over half of their income on mortgage payments, they are facing higher financial risks, particularly as the housing market is still in a downturn. This is not a healthy level of mortgage expenditure,” he added.

Under the special scheme, banks may provide mortgage loans with a maximum LTV ratio of 80% to eligible homebuyers and the DSR limit is adjusted to 60%.

The scheme aims to provide flexibility for banks to assist homebuyers who bought uncompleted residential properties from 2021 to 2023 using stage payment plans to complete their property transactions.

Some banks have expressed willingness to help these homebuyers in hardship if the associated risk is manageable, HKMA said.

However, as the mortgage terms offered by each bank may differ, eligible applicants who have any needs or questions are advised to enquire with banks that are offering such special schemes as soon as possible.

The HKMA has also reminded prospective buyers of uncompleted residential properties to be mindful of the risk of failing to complete the property transaction if they opt for stage payment plans.

Furthermore, prospective buyers wishing to opt for stage payment plans are reminded that if the market value of the uncompleted residential property falls below the purchase price, banks will use the property valuation at the time of mortgage application to calculate the mortgage loan amount. 

As a result, the loan amount approved by the bank may be lower than originally planned, and buyers must bear the related risks if they are unable to secure extra funds for the down payment.