Even after Hong Kong reduced down-payment requirements to help young professionals and families buy homes, banks are beefing up mortgage application standards to ensure recession does not saddle them with bad loans.
Chief Executive Carrie Lam Cheng Yuet-ngor last month approved rules allowing first-time homebuyers to borrow as much as 90 percent a HK$8 million home’s cost.
Earlier, such a high ratio was only permitted on properties worth half as much. The move increased sales of used homes.
But as protests take a heavy toll on the special administrative region’s economy, banks fear a deepening recession, unemployment, and bankruptcies, which could make it hard for borrowers to pay them back.
Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02 percent.
HSBC, one of the top mortgage lenders, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65 percent of their monthly income, must hold a full-time job and own no other property, insiders reveal.
It’s also said that HSBC, Standard Chartered and Bank of China Hong Kong plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead.
The cash rebate – essentially a discount – has come down to as low as 0.5 percent now compared with an average of 2 percent earlier this year. Some banks are supposedly planning to phase it out completely.
“We have to use all the tools to protect our profitability and asset quality in this environment,” says a Hong Kong-based banker with a European bank. “You will see more measures in the next few months.”
Still, HSBC says it is accepting new mortgage applications “as usual” since the announcement of the new easing initiatives, and applications are considered on a case-by-case basis.
Standard Chartered says it will continue its “prudent approach to risk management and returns” and closely monitor the market situation.
Bank of China Hong Kong did not respond to a request for comment.
Some banks in the SAR have raised interest rates for new mortgages twice since August by a total of 25 basis points even as they cut their best lending rates recently for the first time since the global financial crisis.
A month after Lam’s announcement, property agents say most buyers of small- to medium-sized flats are borrowing more than the value of the home while their financial power appears to be weaker than previous customers.
“We get more inquiries from clients who were not clear about their repayment capability,” says Cookie Wong, a managing director of Ricacorp Mortgage Agency. “Some of their income only reaches the bottom line of the requirements unlike before when those buying HK$10 million flats were much more cash sufficient.”
Hong Kong’s home prices fell 4.1 percent from June to September but are still up 5.9 percent this year.
“The government measure is like giving a credit card to primary school students, who shouldn’t be buying homes,” says a representative of a property developer. “When they buy at this expensive level they’ll be trapped once prices fall.”
But some analysts say that as long as the banks retain stringent borrowing standards there will be little risk, and borrowing costs are unlikely to rise sharply in the near term.
“We do not expect the banking sector to materially relax its underwriting standards,” rating agency S&P said in a report on October 29.
“We consider Hong Kong’s banking industry risk to be the lowest among its peers.”
(The Standard 18 Nov 2019)
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