Hong Kong lenders worry about risk from easier mortgage rules

Banks in Hong Kong are worried about risk from easy mortgage rules, which may lead them to financial calamities. Even though Hong Kong has reduced down-payment requirements to help young professionals and families to buy homes, banks are beefing up mortgage application standards to ensure that a recession does not saddle them with bad loans, bankers and mortgage brokers said.

Last month, Hong Kong Chief Executive Carrie Lam, struggling to restore confidence in her administration after five months of civil unrest, approved rules allowing first-time homebuyers to borrow as much as 90% of a HK$8 million ($1 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 the 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, two bankers said.

Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02%.

HSBC, one of the top mortgage lenders in Hong Kong, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65% of their monthly income, must hold a full-time job and own no other property, said two industry sources.

Lenders including HSBC, Standard Chartered and Bank of China Hong Kong also plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead, two bankers said.

The cash rebate - essentially a discount - has come down to as low as 0.5% now, compared with an average of 2% earlier this year. Some banks are planning to phase it out completely, they said.

“We have to use all the tools to protect our profitability and asset quality in this environment. You will see more measures in the next few months,” said a Hong Kong-based banker with a European bank.

All of the bankers, industry sources and mortgage brokers declined to be named as they were not allowed to speak to the media.

HSBC said in a statement that it had continued to accept 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 said it would continue its “prudent approach to risk management and returns” and would closely monitor the market situation to review its strategy. Bank of China Hong Kong did not respond to a request for comment.

Reuters