Prudential Measures for Property Mortgage Loans

Our Ref.: B1/15C
B9/25C
7 July 2023
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Prudential Measures for Property Mortgage Loans I am writing to inform you of the adjustments made by the Hong Kong Monetary Authority (HKMA) today to the countercyclical macroprudential measures for property mortgage loans. Since the countercyclical macroprudential measures for property mortgage loans were implemented in 2009, the HKMA has been assessing conditions in the property market by monitoring factors including property prices and transaction volumes, and the local and external economic environment. The aim is to evaluate the need for appropriate adjustments to these measures to ensure that banks maintain effective risk management in their property mortgage lending business and sufficient capacity to cope with challenges arising from a sharp correction in property prices. Following the COVID-19 pandemic and with interest rates rising, there has been a correction in residential property prices since 2022. Despite a rebound early this year, market data showed that at the end of June residential property prices were down 13% from their peak in 2021. The situation in the non-residential property market was similar. According to the latest statistics published by the Rating and Valuation Department, the prices of offices, flatted factories and retail premises have fallen by 20%, 8% and 17% respectively from their peaks in 2018-
2019. Externally, as major economies continue to face high inflationary
pressures, interest rates may remain elevated for some time. Any slow-down in the global economy due to high interest rates would inevitably affect the local economy.

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Taking all relevant factors into account, the HKMA considers that there is room to adjust the countercyclical macroprudential measures for property mortgage loans, while continuing to maintain banking stability and ensuring the proper risk management of property mortgage loans:
(1) For residential properties for self-occupation, the maximum loan-to-value (LTV) ratios will be adjusted to 70% for properties valued at HK$15 million or below; and 60% for properties with a value of more than HK$15 million and up to HK$30 million. The maximum LTV ratio for residential properties for self-occupation valued at more than HK$30 million will remain unchanged at 50%. To avoid a sudden drop in applicable LTV ratios, ratios for properties in certain value ranges will change gradually. For non￾self-use residential properties, the maximum LTV ratio will remain unchanged at 50%. (2) The maximum LTV ratio for non-residential properties will be adjusted from 50% to 60%. (3) For mortgage loans assessed based on the net worth of mortgage applicants, the maximum LTV ratio will be adjusted from 40% to 50%. This adjustment is applicable to both residential properties and non-residential properties. (4) The existing requirements to lower the applicable maximum LTV ratio and debt servicing ratio (DSR) limit by 10 percentage points for mortgage applicants whose incomes are mainly derived from outside of Hong Kong will be lifted. In addition, the existing requirement to apply a 5-percentage￾point knock down on applicable DSR limits when mortgage applicants’ total mortgage finance exceeds the HKMA’s normal permissible LTV ceilings by 20 percentage points will be removed. These adjustments will take effect from today and apply to property transactions with provisional sale and purchase agreements signed today or subsequently. An updated table summarising the LTV caps and DSR limits for property mortgage

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Annex
Loan-to-value ratio (LTV) caps and debt servicing ratio (DSR) limits for property mortgage loans with effect from 7 July 2023 (Amendments in RED)
Table 1: LTV caps
Property value
Residential properties Commercial and industrial properties and standalone car parking spaces Self-use 1, 2 Non-self-use or company held Applicants who have not borrowed or guaranteed other outstanding mortgage(s) at the time of making a mortgage application 3 DSR-based lending ≤ HK$15 million 70% 50% 60%

HK$15 million and
≤ HK$17.5 million
60% – 70%
(subject to a loan cap of HK$10.5 million)
HK$17.5 million and
≤ HK$30 million 60%
HK$30 million and
≤ HK$36 million
50% – 60%
(subject to a loan cap of HK$18 million)
HK$36 million 50%
Net worth-based lending
Regardless of value 50% 50%
Applicants who have borrowed or guaranteed other outstanding mortgage(s) at the time of making a mortgage application DSR-based lending or net worth-based lending The above applicable LTV caps will be lowered by 10 percentage points.

Annex
Loan-to-value ratio (LTV) caps and debt servicing ratio (DSR) limits for property mortgage loans with effect from 7 July 2023
Table 2: DSR limits
Residential, commercial and industrial properties, and standalone car parking spaces Self-use 1, 2 Non-self-use Applicants who have not borrowed or guaranteed other outstanding mortgage(s) at the time of making a mortgage application3 Base DSR limit 50% 40% Stressed DSR limit (assuming a 200-basis point hike in interest rate) 60% 50% Applicants who have borrowed or guaranteed other outstanding mortgage(s) at the time of making a mortgage application Base DSR limit 40% Stressed DSR limit (assuming a 200-basis point hike in interest rate) 50% Notes:

1 “Self-use” refers to occupancy by the owners or their immediate family members (i.e. parents, spouse, children and siblings), or by an individual majority shareholder or his/her immediate family members if the property is held by a shell company. 2 The HKMA’s countercyclical macroprudential measures are intended to apply to mortgage loans for the purpose of financing property transactions or the refinancing of existing properties. They are not intended to apply to credit facilities secured by properties for the purpose of financing the business operation of corporates, as these credit facilities are subject to a set of comprehensive credit underwriting standards and regular credit reviews by authorized institutions. 3 The limits are applicable to a borrower who has one property under mortgage and is making a mortgage application for either (i) refinancing or (ii) acquiring a new property before disposing the existing one. In the latter case, the applicant has to repay the outstanding mortgage loan for the existing property within 6 months upon the drawdown of the mortgage loan for the new property.