Mortgage Market in Hong Kong

 

The Hong Kong mortgage business is one of the most developed in Asia. According to the

 

The Hong Kong mortgage business is one of the most developed in Asia. According to the

residential mortgage survey (which includes 23 authorized institutions) Nov-2005, the residential mortgage lending has slightly changed at HK$7.8 billion.

The report has depicted that the approval of the new loans by the authorized institutions has decreased by 9.4% to HK$8.7 billion. The number of new applications decreased by 4.2%. The proportion of new loan approvals priced at more than 2.25% and up to 2.5% below the best lending rate which increased to 39.0% from 33.3% in October, and continued to be the most commonly used interest rate band for new approvals in November. The share of new approvals for fixed rate mortgages contracted by a larger extent to 1.0% from 8.4% in October.

The outstanding value of Hong Kong mortgage loans decreased by 0.3% to HK$535.2 billion.
The mortgage delinquency ratio edged down to 0.18% from 0.19% a month earlier. With the rescheduled loan ratio remaining unchanged at 0.35%, the combined ratio improved to 0.53% from 0.54% in October.

Hong Kong Mortgage Insurance Program

According to the program if a mortgage loan amount exceeds 70% of the appraised property value or the current market value (whichever lower), a borrower would be required to join the Mortgage Insurance Program (MIP). This allows banks to offer up to 95% financing.

In March 1999 the Hong Kong Mortgage Corporation (HKMC) launched MIP to promote home ownership in Hong Kong. The MIP aims to reduce the down payment of homebuyers without exposing the authorized financial institutions to additional credit risks.

Under the MIP, the HKMC provides mortgage insurance coverage at a fee to the financial institution for an amount up to 25% of the property value.

Mortgage documents in Hong Kong are commonly written with a provision to cushion the default risks by allowing banks a wide leeway to request for a top-up when they are uncomfortable with the security margin in relation to the outstanding loans.

However, banks in Hong Kong exercise this top-up clause. Banks rarely take action when the value of the property falls below the mortgage outstanding as long as the mortgagor continues to service the loan. When a default occurs, the losses for mortgagors and mortgagees could be higher.

Secondary Mortgage Programme In Hong Kong

Keeping in view the role of a developed secondary mortgage market in channeling long-term funds such as insurance and pension funds, the Hong Kong Mortgage Corporation (HKMC), wholly owned by the Government started a mission to develop this market.

The HKMC’s business is being developed in two phases. The initial phase involves the purchase of mortgage loans for its own portfolio and the funding of the purchases largely through the issuance of unsecured debt securities.

In the second phase, the HKMC securitises the mortgages into Mortgage Backed Securities (MBS) and offers them for sale to investors.

          Home Mortgage Finance |  GMAC Home Finance |  Home Finance Company