A lower bar to get a home loan in Hong Kong, one of the world's most expensive property markets, is unlikely to boost sales as the city's standing as a global financial hub loses its sheen.
The Hong Kong Monetary Authority, the de-facto central bank, announced that banks can keep a lower buffer when they measure a customer's repayment capacity for a loan. The interest rate stress testing requirement for property mortgage lending was cut to 200 basis points, or 2 percentage points, from 300 basis points on Sept. 23. The change applies to mortgage loans for all types of properties, HKMA said.
"The move indicates HKMA's confidence in banks' asset quality and that its concern over systemic risk [from high property prices] has been eased," said Bruce Pang, head of Greater China Research at property consulting firm Jones Lang Lasalle.
While the easing makes it more straightforward for banks to acquire mortgage clients, Pang expects a limited boost in mortgage lending as aside from repayment capacity, potential homebuyers would consider factors such as job security and falling house prices.
Hong Kong has seen an outflow of expatriates in recent years, partly due to its strict pandemic-control measures. Hong Kong ended its mandatory hotel quarantine Sept. 26, months after Singapore, its key rival financial hub in the region. Hong Kong ceded its third place to Singapore in the Global Financial Centres Index released by China Development Institute and Z/Yen Partners Sept. 22.
Rates already higher
Banks in Hong Kong have already raised their interest rates for new mortgages referencing the Hong Kong interbank offered rate, or Hibor, benchmark. Most lenders have also bumped up their prime lending rates as the U.S. Federal Reserve has raised its benchmark interest rate 300 basis points since March.
Debt-to-income ratio for home mortgages, a measure of repayment ability, has increased, to 44.8%, from 44.1% after the prime-backed mortgage rate climbed to 2.625% from 2.5%, according to a Sept. 23 report by Centaline Property Agency Ltd. Adding 300 basis points to the rate under a stressed scenario would have pushed the ratio to 62.8%, the report said.
Property prices have cooled somewhat in Hong Kong amid a slowdown in mainland China and lingering COVID-19 restrictions. The Centaline City Leading Index, which measures home prices in Hong Kong, fell to 169.93 from 170.72 in the week of Sept. 19, according to the property agent's data, hitting its lowest point since February 2019. The benchmark peaked in August 2021 at 191.34.
Still, Hong Kong remains the least affordable market to buy a home, according to a report released in March by the Urban Reform Institute and the Frontier Centre for Public Policy.
The HKMA said the lowered requirement for stress testing, which is to ensure mortgage borrowers have adequate financial ability to cope with the repayment pressure when the interest rate increases so that banks' property lending business risks can be properly managed, would be "sufficiently prudent."