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 (http://www.hkma.gov.hk/eng/key-information/press-releases/2011/20110610-4.shtml).

At the same time, the Hong Kong Mortgage Corporation Limited (http://www.hkmc.com.hk/eng/index.html) 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.