Curb relay mortgages, banks toldBusiness | Tereza Cai 8 Jan 2019
Banks should prevent "relay mortgages" being used as a way to escape the limits of buying properties, Xinhua News Agency reported.
A so-called relay mortgage is a mortgage policy that allows one of the parents and a child both as the borrower to take responsibility to repay the mortgage, applying for both the primary and secondary property market.
Plenty of major mainland cities launched property cooling measures in 2017 and 2018 amid the hot property market. Those cooling measures set requirements for property buyers, including income, period of working in the city, job characteristic, and contribution to the city.
Also, banks offered different downpayment criteria for the same buyer's first and second property.
Some young applicants may not qualify to buy a property or apply for a discount-interest rate mortgage, while their parents meet the requirements, according to the Xinhua's report. So banks should prevent some borrowers from taking advantage of loophole as a way to escape the property buying limits.
The relay mortgage payment policy first emerged in Japan in the 1980s during the bubble economy. Since property prices in Japan then were unaffordable - exceeding more than 30 years average income - banks launched the policy to prolong the payment for a house from 30 years for a single buyer, to 50 years by a parent and child.
Mainland media reported last week the Hangzhou branch of Agricultural Bank of China (1288) launched a new mortgage policy allowing the payment period extended to a maximum borrower's age of 80 - up from the current payment period of age 70.
AgBank denied the policy on its official twitter-liked Weibo account, saying the bank's top limitation of relay mortgage policy was still 70 years.
The bank stated several advantages of the relay mortgage policy, which was launched more than 10 years ago.
If the parents are too old, under the normal mortgage rules, which requires borrowers' age, plus the payment period to be below 70 years, the parents as the primary borrower would be under huge pressure. Once designating a child as a co-borrower, the payment pressure would be eased.
In another case, if the youngsters' income is too low at present when applying for the loans, the relay mortgage policy could help make the payment period longer by adding the parent as a co-borrower.
The requirements of the relay mortgage include the provision one of the parents be under 60 years old, and that the child should have a promising career, plus the monthly payment should be less than 50 percent of the family's monthly income.