Revisions of the Mortgage Insurance Programme
Last Friday, The Hong Kong Mortgage Corporation Limited (HKMC) announces the following revisions was made to the Mortgage Insurance Programme (MIP) so that the maximum MIP cover for eligible properties would be reduced from 90% LTV ratio to 80% LTV ratio, except for those first time homebuyers with regular salary and stronger repayment ability.
Since Hong Kong Monetary Authority publish the new policy on last Friday (27/2/2015), it cause a fear in remortgages. Secretary for Transport and Housing Anthony Cheung Bing-leung warned that remortgages carry huge risks for the entire financial system in the event of a plunge in home prices. Some lawmakers questioned the effectiveness of new curbs, effective from Friday, that reduce the maximum mortgage one can take out on a unit priced below HK$7 million to 60 percent from 70 percent.
Cheung said the curbs are aimed at “raising the anti-seismic ability of the financial system” amid market uncertainties. Property prices have increased by an average 0.5 percent per month since April as cooling measures launched in February 2013 lost their deterrent effect.
Current home prices are almost at their peak, he warned, and the impact of the new curbs have yet to be felt. The banks and their affiliates cannot offer top-up mortgages. But such mortgages offered by other finance companies are not regulated by the Hong Kong Monetary Authority.
Bank of China Hong Kong (2388.HK) said in a report that Friday’s move had an immediate impact on property transactions amid low sales volume over the weekend. A possible US interest rate hike poses more downside pressure on home prices, it said.