LCQ20: The Mortgage Insurance Programme
***************************************
Question:
On February 23 last year, the HKMC Insurance Limited made amendments to the Mortgage Insurance Programme (MIP), including adjusting upwards from $8 million to $10 million for the cap on the value of the properties in respect of which first-time homebuyers may apply for insurance of mortgage loans up to 90 per cent loan-to-value (LTV) ratio, adjusting upwards from $10 million to $12 million for the cap on the value of owner-occupied properties which are eligible for insurance of mortgage loans up to 80 per cent LTV ratio, and extending MIP's coverage to cover properties of value from above $12 million and up to $19.2 million (subject to a mortgage loan cap of $9.6 million). In this connection, will the Government inform this Council:
(1) of the number of mortgage insurance applications approved under MIP since the aforesaid amendments came into effect, with a breakdown by (I) property value (i.e. (i) $4 million or below, (ii) above $4 million and up to $10 million, (iii) above $10 million and below $11.25 million, and (iv) at or above $11.25 million and up to $19.2 million), and (II) saleable area of property (i.e. (i) 20 square metres (sq m) or below, (ii) above 20 sq m to 40 sq m, (iii) above 40 sq m to 60 sq m, (iv) above 60 sq m to 80 sq m, (v) above 80 sq m to 100 sq m, (vi) above 100 sq m to 120 sq m, and (vii) above 120 sq m), as well as the percentages;
(2) among the approved applications mentioned in (1), of the number of those the applicants of which were first-time homebuyers;
(3) whether it has studied (i) if the aforesaid amendments can expedite the turnover of private residential properties and promote transactions of property replacement by homebuyers, and (ii) how MIP's coverage after the aforesaid amendments compares with the coverage which had come into effect on October 16, 2019 before the aforesaid amendments, in terms of their outcome; if so, of the details; if not, the reasons for that; and
(4) given that the number of residential mortgage loans in negative equity increased from 55 cases to 533 cases from the end of the second quarter to the end of the third quarter last year with some of the cases involving loans under MIP and, having regard to the recent surge in interest rates, whether the Government has assessed the moral hazards involved in MIP (e.g. the possibility of homebuyers purchasing properties which are beyond what they can afford); if so, of the details; if not, the reasons for that?
Reply:
President,
Regarding Reverend Canon the Hon Peter Douglas Koon's question, in consultation with the Hong Kong Monetary Authority (HKMA), my reply is as follows:
(1) The Mortgage Insurance Programme (MIP) was introduced in 1999. Since the amendments to the MIP in February 2022 up to end-December 2022, a total of 16 104 loans had been drawn down. A breakdown by property value and property size, and the respective percentage distribution is as follows:
| Property value | Number of loans drawn down | Percentage (%) |
| HK$4 million or below | 952 | 5.91 |
| Above HK$4 million and up to HK$10 million | 13 427 | 83.38 |
| Above HK$10 million and below HK$11.25 million | 670 | 4.16 |
| At or above HK$11.25 million and up to HK$19.2 million | 1 055 | 6.55 |
| Total | 16 104 | 100 |
| Property size | Number of loans drawn down | Percentage (%) |
| 20 square metres or below | 574 | 3.56 |
| Above 20 square metres to 40 square metres | 6 629 | 41.16 |
| Above 40 square metres to 60 square metres | 6 697 | 41.59 |
| Above 60 square metres to 80 square metres | 1 778 | 11.04 |
| Above 80 square metres to 100 square metres | 344 | 2.14 |
| Above 100 square metres to 120 square metres | 60 | 0.37 |
| Above 120 square metres | 22 | 0.14 |
| Total | 16 104 | 100 |
(2) For the number of loans drawn down under the MIP as mentioned in part (1), 14 010 loans involved first-time homebuyers, accounting for 87 per cent of all loans drawn down during the period.
(3) The market responded positively to the amendments made to the MIP, generally considering them helpful to first-time homebuyers and families seeking replacement of self-occupied property for self-use. According to the Land Registry's statistics, there was an increase in the number of sale and purchase agreements of residential units in Hong Kong in the three months after the MIP amendments (i.e. March to May 2022), with the increase in transaction volume being more significant for properties valued at HK$10 million to HK$20 million. In the subsequent few months, the local property market as affected by various factors (e.g. the rising mortgage rates) saw relatively fewer transactions. Overall speaking, the property market is affected by a host of factors, and the loan-to-value (LTV) ratios of mortgage loans is just one of them.
In addition, since the amendments to the MIP in October 2019 up to end-December 2022, a total of 48 062 loans were drawn down under the extended coverages introduced in October 2019 and February 2022, accounting for 73 per cent of all loans drawn down during the period, demonstrating that the amendments have assisted homebuyers. As the timing of implementation and coverage of the two amendments differ, and the property market is affected by various factors, there may be difficulties in making a direct comparison of the effectiveness of the two amendments.
(4) The number of residential mortgage loans in negative equity has registered a notable increase recently, mainly because residential property prices dropped by 7.7 per cent in the fourth quarter of 2022 after falling by 8.5 per cent in the first three quarters. Meanwhile, the delinquency ratio of residential mortgage loans in the banking sector has remained low consistently, at 0.06 per cent as of end-December 2022. This demonstrates that the risk of banks' property mortgage lending business remains manageable.
While the applicable property value caps of the MIP have been adjusted, borrowers are still required to meet specific eligibility criteria, including a maximum debt-to-income (DTI) ratio of 50 per cent as well as the stressed DTI ratio imposed by banks. First-time homebuyers who cannot meet the stressed DTI ratio will be subject to premium adjustment based on relevant risk factors when they apply for loans with an LTV ratio of up to 80 per cent or 90 per cent. For borrowers with mortgage loans exceeding an LTV ratio of 80 per cent, the MIP has stipulated additional eligibility criteria, including that the applicants must be first-time homebuyers and regular-salaried. Potential homebuyers should consider their own needs and repayment abilities before making decisions, and should carefully assess and manage the risks involved.
Ends/Wednesday, February 8, 2023
Issued at HKT 14:20
Issued at HKT 14:20
NNNN