Hong Kong to relax mortgage arrangements for second-hand subsidised homes to support less well-off buyers

Mortgage arrangements for second-hand subsidised homes in Hong Kong will be relaxed from March next year, after housing authorities approved a proposal to increase the circulation of flats and support low-to-middle income homebuyers.

The move, which extends the mortgage default guarantee period for the flat from 30 to 50 years, was proposed by Chief Executive John Lee Ka-chiu in his second policy address last month and endorsed by the Housing Authority on Friday.

“The extended mortgage guarantee and repayment period would be helpful to people who want to buy a home but with limited financial abilities,” said Cleresa Wong Pie-yue, chairwoman of the authority’s subsidised housing committee.

“But the market response is hard to predict because there are many factors affecting the homebuyers’ decision, including market sentiment, the economy, their income and repayment abilities, as well as the attractiveness of our housing project.”

During the mortgage guarantee period, the government will pay off the loan for residents unable to do so but the lender will then take ownership of the flat.

The guarantee, which was put in place to encourage banks and financial institutions to provide better mortgage terms for buyers of subsidised homes sold under home ownership schemes (HOS), applies to flats sold both on the first and second-hand markets.

Only 39,000 of the city’s 280,000 subsidised flats, or 14 per cent, that fall under the two schemes have more than 10 years of mortgage guarantee period remaining, according to Wong. When the extended guarantee period comes into effect in March, the proportion will climb to 98 per cent, covering 274,000 flats.

Under the new rule, homebuyers can get a mortgage equal to 90 or 95 per cent of the value of the property for the first 40 years. For the remaining 10 years, the loan-to-value ratio will be adjusted to 80 per cent to mitigate the financial risk to the government.

HKMC Insurance Limited, owned by Hong Kong Mortgage Corporation Limited, offers loans of up to 90 or 95 per cent of the value of the home through the mortgage insurance programme for homebuyers who needed a bigger loan.

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Meanwhile, buyers of second-hand subsidised flats will themselves see the maximum mortgage repayment period extended from 25 years to 30 years, from March next year.

The Housing Authority also relaxed rules for those buying public rental flats sold on the second-hand market by extending their maximum mortgage default guarantee period from 25 to 50 years. They will also see their repayment period lengthened to 30 years.

Currently, only a fourth of those flats have a residual guarantee period of more than 10 years, but the new rule will increase the proportion to 100 per cent.

Separately, the committee also endorsed initiatives to relax the mortgage arrangements for those buying HOS and public rental flats sold on the first-hand market. The relaxed rules will take effect in January next year.

Hong Kong’s property market needs time to adjust to measures: John Lee

The maximum mortgage default guarantee period will be extended from 25 to 30 years for public housing tenants buying their flats under the Tenants Purchase Scheme.

Those tenants, along with those buying subsidised flats, will also see their maximum mortgage repayment period extended from 25 to 30 years.

Scott Leung Man-kwong, a lawmaker and a member of the Housing Authority, said he welcomed the initiatives, which he said would ease the burden on homebuyers.

“We saw many prospective homebuyers who managed to get a quota in the white form secondary market scheme but were deterred from buying the flat, because they could not secure a mortgage loan with a longer tenor,” he said, referring to buyers eligible for home ownership schemes and usually not living in public rental flats.

“The longer guarantee period should be able to expand the market and increase the circulation of second-hand subsidised homes.”

Hong Kong’s property market needs time to adjust to measures: John Lee

But Leung said he believed the extension of the guarantee period was “just the first step” and called for more incentives to encourage owners of subsidised homes to sell their homes to further increase the supply of second-hand flats.

The Federation of Public Housing Estate also voiced support for the moves, but urged the government to expand the quota of homes allowed to be sold under the white form secondary market scheme, and allocate at least 20 per cent to individuals, so as to help more young people buy a flat.

Chief Executive John Lee promised to expand the existing annual quota of 4,500 during his election campaign in 202, but authorities have yet to do so.