Concrete Analysis | First-home borrowers must read the fine print as the devil is in the details of Hong Kong’s relaxed mortgage entitlements
- The new measure is considered to be a “godsend” for first-time homebuyers
- Double-income households can now afford to buy larger flats, compared with the nano flats they could only afford previously
The Hong Kong government announced last Wednesday to relax the cap on the property value eligible for a mortgage loan with a maximum cover of 80 per cent loan-to-value (LTV) ratio from HK$6 million to HK$10 million (US$1.27 million). For mortgage loans up to 90 per cent LTV ratio applicable to first-time homebuyers, the maximum property value is fixed at HK$8 million, going up from the previous HK$4 million.
The new measure is considered to be a “godsend” for first-time homebuyers. Let’s take a two bedroom flat of Whampoa Garden, a well-recognised middle-class estate currently valued at around HK$7 million, as an example.
Originally, homebuyers should be paying HK$2.8 million as down payment. However, after the new measure comes into effect, it will require merely HK$700,000 to become a homeowner in such a blue chip estate, while this amount was previously barely enough to buy a nano flat in the New Territories.
Based on an effective mortgage rate of 2.625 per cent on a 30-year loan, the monthly mortgage payment amounts to around HK$25,000, which is quite affordable for a two-income household.
Best of all, homebuyers used to spend up to half of their monthly income on mortgage payment and before that, they have to pass the bank stress test. Under the new measure, the stress test can even be waived.
However, one should not quickly jump on the bandwagon and rush to buy just because the dream house now becomes more affordable. Let me discuss the new plan at length as both the devil and the angel are in the details.
