Hong Kong’s property market is showing some resilience of late as buyers throng showrooms on weekends in spite of the threat of rising Covid-19 infections, with prices and buying sentiment on the ascent.
The upturn has come on the back brisk transactions in June and July amid expectations the Covid-19 pandemic has peaked. The bullish signs over the weekend could mean a backlog of mortgage applications and a slowdown in processing could get worse.
Buyers who need to apply for bank mortgages to finance their purchases should expect a lengthy delay in their mortgage applications. Most back-office staff at banks are required to work from home as precaution to help contain the coronavirus pandemic. Mortgage evaluation process will thus likely take longer than usual and this can cause anxieties for first-time borrowers.
A mortgage application normally takes two to three weeks to be processed but this time, homebuyers should expect this to stretch up to two months. This includes the time for getting the second approval from Hong Kong Mortgage Corporation (HKMC) in case they seek a higher loan-to-value ratio (LTV).
For first-time homebuyers, be it for new or existing homes, here are some guidance and tips to help ensure a speedy and successful mortgage application.
Tip #1: Property transactions in the secondary market usually take only two months to complete. Hence, try to negotiate with the seller to extend the completion period to three months before signing the sales and purchase (S&P) contract. This will buy some time any potential hiccup in approval.
An increasing number of banks are exercising more restraint in granting mortgages to borrowers especially those who are employed in so-called high-risk sectors given the state of the economy.
If you are asked by your employer to take a “no pay leave”, or you foresee that measure as being imminent, it would be wise to hold off buying your dream home as the mortgage might not be approved. That applies to a sudden “no pay leave” before mortgage drawdown.
Banks or the HKMC may require proof of most-recent salary even after the mortgage is approved. Those who work in mainland China and cross the borders frequently and have their pay cut due to mandatory quarantine requirements, here’s a reminder: banks base their decisions on the reduced salary, not the contractual salary.
The financial status of your employer also matters. There was a case recently when all but one bank rejected the mortgage application of a homebuyer when news about his/her employer’s financial troubles made headlines in the mainstream media.
If your salary is based on variable commission or not anchored on a fixed, recurring basis, you should expect to face more hurdles in your mortgage application as banks now employ their own methodology for applicants with non-recurring income.
The Hong Kong Monetary Authority’s guideline is to take a six-month average of the commissions to calculate the debt servicing ratio. However, some banks have recently departed from that yardstick by taking the lower of the average and the recent months figures.
This has a bearing on those who work in sectors hardest hit by the city’s economic recession, or whose guarantors are over 60 years of age. Some banks cut the maximum LTV ratio by 5 percentage points as a safety cushion. That means homebuyers will have to cough up more money as down payment.
Mortgage scrutiny has recently been tightened on those with so-called lower quality income, such as revenue from self-employment, cash-based earnings and those who opt for asset-based mortgages with no income backing. Thus, expect banks to verify at great length your salary or proof of revenue before giving their green light.
Tip #2: Make sure your income is secure. Understand the approval guidelines of different banks before jumping on the property bandwagon. For those with non-solid income, try to secure a mortgage pre-approval first before signing the S&P contract.
As a precaution, apply to at least three banks, with the HKMC and QBE as a backup plan. With more and more bank branches being closed or service hours being shortened, many applicants may resort to online services. However, online applications may not be processed by dedicated and experienced mortgage specialists.
Tip #3: Apply through direct mortgage specialists to increase the chances of approval.
A dedicated mortgage specialist earns commission based on successful applications, so they are motivated to negotiate with the approver on behalf of applicants. Handing your mortgage application to these specialists may increase the chances of success and within a shorter time frame.
These mortgage specialists are listed on bank websites. Alternatively, ask your property agents or mortgage brokers for referrals. These specialists normally offer advice through WhatsApp, phone or email.
Tip #4: Lastly, remember to insert some virus-related clauses as an insurance. Just in case either you, the seller, the lawyer or the property agency is required to undergo a quarantine, make sure the completion date will be automatically extended until the quarantine is over.
This will protect you from the risk of missing the completion deadline, resulting in your deposit being forfeited. Large property agencies will have these clauses written in S&P contracts, but many small agencies may not yet be aware of them.
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