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<HK Property>HKMA Adjusts Max. LTV to 70% for Properties Valued at $30M or Below, Mulls Appropriate to Halt Stress Test for Mortgages that Assume 200bps Rise in Mortgage Rate
The Hong Kong Monetary Authority (HKMA) today (28th) issued guidelines to banks adjusting the countercyclical macroprudential measures for property mortgage loans and other related...
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<HK Property>HKMA Adjusts Max. LTV to 70% for Properties Valued at $30M or Below, Mulls Appropriate to Halt Stress Test for Mortgages that Assume 200bps Rise in Mortgage Rate
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The Hong Kong Monetary Authority (HKMA) today (28th) issued guidelines to banks adjusting the countercyclical macroprudential measures for property mortgage loans and other related supervisory requirements.

The HKMA said that property prices continue to adjust recently. Official residential property prices decreased by 7% in 2023, and further declined by 1.6% in January 2024, with a cumulative correction of more than 20% from their peak in 2021. Residential property transaction volume stayed low with an average number of transactions of 3,584 per month in 2023, representing an annual decline of 4.5%. The situation in the non-residential property market is similar. The average prices of offices fell by approximately 7% in 2023, while market data showed that the vacancy rate of Grade A offices rose to about 16% at the end of last year. Meanwhile, the external and domestic economic outlooks are still subject to many uncertainties.

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After detailed analyses, the HKMA considers that there is room to adjust the countercyclical macroprudential measures for property mortgage loans and to suitably adjust other related supervisory requirements on property loans.

For residential properties for self-occupation, the maximum loan-to-value (LTV) ratios will be adjusted to 70% for properties valued at HK$30 million or below; and 60% for properties valued at HK$35 million or above. To avoid a sudden drop in applicable LTV ratios, ratios for properties valued between HK$30 million and HK$35 million will be adjusted downward gradually. For non-self-use residential properties, the maximum LTV ratio will be adjusted from 50% to 60%.

The maximum LTV ratio for non-residential properties (including offices, retail shops and industrial buildings) will be adjusted from 60% to 70%. For mortgage loans assessed based on the net worth of mortgage applicants, the maximum LTV ratio will be adjusted from 50% to 60%. This adjustment is applicable to both residential properties and non-residential properties.

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With the US Federal Reserve recently expressing that the US rate hike cycle might be approaching an end, the probability of a further increase in mortgage interest rates in Hong Kong in the near future is relatively low. The HKMA therefore considers it appropriate to suspend the interest rate stress testing requirement for property mortgage lending that assumes a 200-basis-point rise in the mortgage rate.

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