HKMA raises property mortgage loans ratio limits and suspends interest rate stress testing

Hong Kong Monetary Authority (HKMA) has announced revisions to the countercyclical macroprudential measures and other related regulatory requirements for property mortgage loans.

The adjustments include changes to the maximum loan-to-value (LTV) ratios for residential properties for self-occupation, non-self-use residential properties and non-residential properties, as well as the suspension of the stress testing requirement for property mortgage lending that assumes a 200-basis-point rise in the mortgage rate.

For owner-occupied residential properties valued at HK$30 million or below, the maximum LTV ratio has been adjusted to 70 percent.

For properties valued at HK$35 million or above, the LTV ratio has been adjusted to 60 percent. The LTV ratios for properties valued between HK$30 million and HK$35 million will be adjusted downward gradually.

The ratio for non-self-use residential properties has been increased from 50 to 60 percent.

Regarding non-residential properties, including offices, shops, and industrial buildings, the maximum LTV ratio has been raised from 60 to 70 percent. 

The LTV ratio for property mortgage loans based on the net worth has been increased from 50 to 60 percent, which will be applicable to both residential and non-residential properties.

As the probability of a further increase in mortgage interest rates in the near future is relatively low, HKMA said it is time to suspend the interest rate stress testing requirement for mortgages.

In addition, HKMA has decided to revert the financing caps for property development projects back to the pre-2017 levels – with the cap to be increased from 50 percent to 60 percent of the expected value of the completed properties and the financing cap for the construction cost will be increased from 80 percent to 100 percent.

The adjustments will take effect immediately and apply to property transactions with provisional sale and purchase agreements signed on or after today.

HKMA stated that these decisions are based on recent adjustments in property prices, uncertain external and local economic prospects, and the possibility of the US interest rate hiking cycle nearing its end.

It will continue to closely monitor market developments and introduce appropriate measures to safeguard the stability of the banking system.