LCQ19: Residential Mortgage Loans (8

Press Release

LCQ19: Residential mortgage loans October 8, 2003

Following is a question by the Hon Albert Chan and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council

Question:

At present, many mortgage agreements in respect of "negative-equity residential properties" were signed before the Asian financial turmoil. The mortgage rates were set at the best lending rate (BLR) plus 1% or 2% in many of these agreements. Given that the mortgage rates of most new loans in recent years have been set at rates lower than "BLR minus 2%", owners of properties with the previous mortgage agreements have asked the mortgagee banks to reduce the mortgage rate. However, banks often require the owners to first repay an amount equivalent to the shortfall of the negative-equity, before they will consider reducing the mortgage rates. As many owners are unable to pay the amount, they have to continue to repay the loan instalments at the high rates originally agreed upon. In this connection, will the Government inform this Council of:

(a) the annual number of "repossessed flats" on sale in the market in the past three years;

(b) the measures the Government has in place to help "negative-equity property" owners in relieving the burden on mortgage interests and restructuring their debts;

(c) the number, in each of the past three years, of "negative-equity property" owners who had mortgage rates reduced by their mortgagee banks, and the magnitude of the reduction; and

(d) the current number of residential mortgage agreements the mortgage rates of which are still above BLR?

Reply:

Madam President,

(a) According to survey findings of the Hong Kong Monetary Authority (HKMA), about 4,000 repossessed residential properties were disposed of by authorized institutions (AIs) in the 12-month period to June 2003. Statistics prior to this period are not available.

1 (b) The following steps have been taken by the HKMA to provide AIs with greater flexibility to help negative equity homeowners reduce their financial burden:

(i) In October 2001, the HKMA issued a letter to AIs allowing them to refinance residential mortgage loans (RMLs) in negative equity up to 100% of the current market value of the mortgaged properties;

(ii) In November 2001, the HKMA wrote to the two industry associations to encourage their members to set up centralised units or hotlines to handle enquiries about the restructuring of loans in negative equity;

(iii) The HKMA also supported the initiatives taken by the Hong Kong Mortgage Corporation and other parties in arranging programmes with AIs to help negative equity homeowners to refinance mortgage loans in excess of 100% of the current market value of the properties (currently up to 140%) at a more favourable mortgage rate; and

(iv) In light of the rising number of negative equity loans, the HKMA wrote to all AIs in February 2003 to encourage them to continue to be accommodating towards negative equity homeowners in financial difficulties seeking loan restructuring. CE/HKMA also put out a viewpoint article in August 2003 to further encourage the AIs.

(c) The HKMA's survey results indicate that during the 15-month period from June 2002 (Note) to August 2003, some 6,700 cases of negative equity RMLs received interest rate reductions and about 2,800 cases of negative equity RMLs had other mortgage terms restructured such as loan tenor extended.

The weighted average interest rate on negative equity RMLs has substantially declined to the current level of 1.07% below the best lending rate (BLR) from 0.27% below BLR at end- September 2001.

(d) As at end-June 2003, about 15% of negative equity RMLs were being charged above BLR.

Note: Regular information on RMLs in negative equity was collected only with effect from June 2002.