7. What should a purchaser do if a mortgage is needed?
It is best to inquire at a bank(s) about the possibility of a mortgage on the flat in question before you sign the provisional sale and purchase agreement. Failing that, the purchaser should apply to a bank for a mortgage immediately after signing the provisional agreement.
In June 2011, the Hong Kong Monetary Authority issued a circular to banks requesting them to apply a maximum loan-to-value (LTV) ratio of 50% to properties which are for self-use with a value at or above HK$10 million. For residential properties with a value between HK$7 million and HK$10 million, the maximum LTV ratio shall be 60%, subject to a maximum loan amount of HK$5 million. For residential properties with a value less than HK$7 million, the maximum LTV ratio shall be 70%, subject to a maximum loan amount of HK$4.2 million.
If the principal income of the mortgage loan applicant is not derived from Hong Kong, the maximum LTV ratio will be lowered by at least 10% points, regardless of property types or values.
The banks are also asked to limit the amount they advance to borrowers and ensure that the maximum loan-to-value ratio does not exceed 40% of the borrower’s net worth (see relevant press release here).
At the same time, the Hong Kong Mortgage Corporation Limited also lowers the cap on the value of property that can be covered under the Mortgage Insurance Programme (MIP) from HK$ 6.8 million to HK$ 6 million. For mortgage loan with MIP cover starting from 70% LTV threshold, the maximum loan amount is reduced to HK$5.4 million. For mortgage loan with MIP cover starting from 60% LTV threshold, the maximum loan amount is reduced to HK$5 million.
Also, the MIP is not available to applicants whose principal income is not derived from Hong Kong.
What if the purchaser wants to acquire an additional and/or second mortgage?
The purchaser needs to check whether the first mortgage allows an additional and/or second mortgage before applying to a bank for an additional or second mortgage.