On 14 June 2024, the HKMA announced a set of technical adjustments to the countercyclical macroprudential measures for property mortgage loans that were previously announced on 28 February 2024.
The refinements are in response to recent market observations and aim to provide support for homebuyers facing challenges, which cover the following aspects: –
(i) Expansion of countercyclical macroprudential measures for residential properties under construction
The HKMA’s countercyclical macroprudential measures will now apply to mortgage applications for residential properties under construction for self-occupation. This includes (a) properties where the provisional sale and purchase agreements were signed before 28 February 2024 and (b) properties which are scheduled for completion on or after that date. When processing the newly-eligible mortgage applications, authorized institutions (“AIs”) must obtain a declaration from the applicant that the property is for self-occupation. The refinement is effective as of 14 June 2024 and will permit eligible homebuyers to obtain mortgage loans with a maximum loan-to-value ratio of up to 70%.
(ii) Simplification of net worth-based mortgage loans calculations
The HKMA is also refining the net worth-based approach used by AIs to assess mortgage applicants’ repayment ability. Previously, AIs could either opt for the Net Asset Value (“NAV”) approach or the Asset-to-Total Debt (“ATD”) approach. As the NAV approach is more commonly used now, the HKMA has withdrawn the ATD formula and standardised the definitions of “eligible assets” and “total debt obligations” for the refined NAV formula. AIs may continue to use the ATD approach if appropriate, while applying the refined NAV formula and definitions.
(iii) Adjustment of the haircuts on rental income of investment properties
Considering recent market conditions, the HKMA is also revising the discount rate applied to the gross rental income of investment properties when computing the Debt Servicing Ratio (DSR). The indicative discount rate is now being reduced from at least 30% (or at least 40% without rental income proof) back to at least 20%. This indicative level is a reference point for AIs, and they are still allowed to apply a different discount rate based on their own assessment of the circumstances of individual borrowers and properties.
For the press release, please see here. To access a copy of the circular, please see here.
