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As recession takes hold, HK banks worry about risk of easier mortgage rules

Hong Kong

EVEN as Hong Kong has reduced down-payment requirements to help young professionals and families to buy homes, banks are beefing up mortgage application standards to ensure that a recession does not saddle them with bad loans, bankers and mortgage brokers said.

Last month, Hong Kong Chief Executive Carrie Lam, struggling to restore confidence in her administration after five months of civil unrest, approved rules allowing first-time homebuyers to borrow as much as 90 per cent of a HK$8 million (S$1.4 million) home's cost.

Earlier, such a high ratio was only permitted on properties worth half as much. The move increased sales of used homes.

But as the protests take a heavy toll on the special administrative region's economy, banks fear a deepening recession, unemployment and bankruptcies, which could make it hard for borrowers to pay them back, two bankers said.

Historically, mortgage delinquency is rare in Hong Kong, with a rate of about 0.02 per cent.

HSBC, one of the top mortgage lenders in Hong Kong, recently issued a guideline that buyers cannot have a mortgage payment that exceeds 65 per cent of their monthly income, must hold a full-time job and own no other property, said two industry sources.

Lenders including HSBC, Standard Chartered and Bank of China Hong Kong also plan to increase interest rates for mortgages and reduce cash rebates to borrowers in the months ahead, two bankers said.

The cash rebate - essentially a discount - has come down to as low as 0.5 per cent now, compared with an average of 2 per cent earlier this year. Some banks are planning to phase it out completely, they said.

"We have to use all the tools. . . to protect our profitability and asset quality in this environment. You will see more measures in the next few months," said a Hong Kong-based banker with a European bank.

HSBC said in a statement that it had continued to accept new mortgage applications "as usual" since the announcement of the new easing initiatives, and applications are considered on a case-by-case basis.

Standard Chartered said it would continue its "prudent approach to risk management and returns" and would closely monitor the market situation to review its strategy. Bank of China Hong Kong did not respond to a request for comment.

Some banks in Hong Kong have raised interest rates for new mortgages twice since August by a total of 25 basis points, even as they cut their best lending rates recently for the first time since the global financial crisis.

A month after Mrs Lam's announcement, property agents said most buyers of small to medium-sized flats are borrowing more of the value of the home, while their financial power appears to be weaker than previous customers'.

"We got more enquiries from clients who were not clear about their repayment capability," said Cookie Wong, a managing director of Ricacorp Mortgage Agency. "Some of their income only reaches the bottom line of the requirements, unlike before, when those buying the HK$10 million flats were much more cash sufficient." Hong Kong's home prices fell 4.1 per cent from June to September, but are still up 5.9 per cent this year.

Some analysts, however, say that as long as the banks keep stringent borrowing standards, there will be little systemic risk, and borrowing costs are unlikely to rise sharply in the near term. REUTERS

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