Monetary Authority tightens mortgage rules

January 20, 2015 09:42
Investors in residential property can no longer rely on rental income to cover as much of their mortgage payments as in the past. Photo: HKEJ

The Hong Kong Monetary Authority has tightened mortgage lending rules, the Hong Kong Economic Journal reported Tuesday. 

It has lowered the maximum portion of rental income landlords can take into account when calculating the loan-to-value ratio and debt-servicing ratio on loans they use to buy the homes they lease out.

The change is to ensure the borrowers earn enough rental income to cover maintenance costs, land rent and other overheads.

"Having reviewed the market trends and the results of our on-site examinations, we believe that it is not sufficient to cover the associated expenses within the 20 percent discount level," Hong Kong's de facto central bank said in a circular.

Authorized lenders should instead discount the amount of rental income by at least 30 percent in cases with rental income proof or at least 40 percent in cases without rental income proof, it said.

Market players expect the measure to have some impact on property investors who seek to use their rental income to pay for their mortgage. 

The new rule is especially aimed at mitigating the risk faced by banks that extend mortgage loans to shell companies as if they were operating companies.

Figures from the banking watchdog show corporate borrowers account for 16 percent of outstanding residential mortgages, although not all are shell companies.

--Contact us at [email protected]


Freelance journalist