What You Need To Know About Your Home Loan Deposit In Hong Kong
If you have no idea what it means, then you cannot be a homeowner in Hong Kong.
This is one of the important requirements for those who wish to own a house in this region. While you can borrow a home loan to finance your home buying dreams, you are required to put down a percentage of the sale price as your deposit.
A deposit is an amount that you will pay in cash to buy a real estate property in Hong Kong. Obviously, the average resident cannot buy a property 100% in cash. Hong Kong is one of the most expensive cities when it comes to housing prices. But in order to secure a mortgage, you need to come up with a deposit first.
According to the study published on JLL.com, the strict loan-to-value (LTV) ratio in Hong Kong is viewed as the main challenge faced by aspiring homeowners. The ideal LTV asked by banks is 60%. That means you need to come up with a 40% deposit.
Some banks will allow you to get a home loan with just a 70% LTV – but the 30% is still a sizeable amount to save up for – especially since the housing prices in the area costs a couple of millions in Hong Kong dollars.
2 options if you lack the down payment for a home loan
According to the Hong Kong Mortgage Corporation (HKMC), the highest LTV is 60% – at least, if the value of the property is below HK$5 million. That means you should have HK$2 million saved as your home loan deposit. In case this is impossible for you to reach, you have two options to make your home buying dreams a reality.
Get a Mortgage Insurance Programme (MIP)
Your first option is to get a Mortgage Insurance Programme through the HKMC. This will allow you to borrow up to 90% of the LTV. This programme from the government provides mortgage lenders with a mortgage insurance to help home buyers acquire their first property despite a small home loan deposit.
If approved, you only have to save up for HK$500,000 to buy an HK$5 million home. Of course, the qualifications will be a bit tough to meet. This is only for first-time home buyers and they should not be property owners. Not only that, their debt-to-income ratio should be lower than 45%. There is also a limit to the home value that you can purchase. In case you do not qualify, you might be allowed to enter the programme but only for an 80% LTV ratio.
The great thing about this option is you will be given a low-interest rate on the loan – after all, the lender is provided with an insurance. Not only that, the fees involved here will be lower compared to the second option – which is getting a second mortgage to cover the deposit that you lack.
Get a second mortgage.
As mentioned, your other option to buy a house in Hong Kong despite a low home loan deposit is to borrow a second mortgage. This is something that banks and property developers offer to attract home buyers who are struggling to save up for a deposit.
The maximum term of this loan is 20 years and the interest is higher than the traditional mortgage by up to 2%. The interest rate on this mortgage is a variable one – either following the HIBOR (Hong Kong Inter-Bank Offered Rate) or the Prime Rate.
While the qualifications for this option is not as strict as the MIP, it is quite limited. For instance, it is only offered for those who will buy new properties – which are technically more expensive for a first-time home buyer.
Having two mortgages can really set back the new homeowner back financially. Not only that, the second mortgage should be approved by the mortgage lender that will approve your first loan. So if you plan to use this second option, discuss it with the first lender to make sure you will get a second loan from one they can approve.
Tips to help you save up for a mortgage deposit
In an ideal scenario, you just have to save up for the home loan deposit as the law requires. Going through the MIP or the second mortgage might jeopardize your home loan payments. You might end up losing your home to foreclosure.
Make sure you do your calculations before you finalize your decision. Just be honest about how much deposit you can afford. If you can only save up HK$800,000, then look for a house that has a value of HK$2 million.
This is hard to look for because the Hong Kong housing market is very expensive. But do not rush the home buying process if your finances cannot afford it.
To help you save up for the deposit of your home purchase, here are some tips that you can follow:
- Set up an automatic transfer to help you commit to saving for a deposit. Take a year or two and save as much as you possibly can. Make sacrifices to lower your expenses.
- Save your change. Any spare change that you have in your handbag at the end of the day should be placed in a jar marked for your home loan deposit. It may seem like a small amount but it can add up over time.
- Set aside any windfall money. If you get a raise, do not be quick to give your lifestyle an upgrade. Resist the urge to buy new clothes or go on a holiday. Put that money aside for your deposit.
- Sell your car. The MTR is quite extensive in Hong Kong and the public transport is quite efficient. You can live without a car for a couple of years.
While saving can take time, you will see that your momentum will grow as you see your savings increase over time. Soon, you will find yourself reaching your goal to save up for a home loan deposit. To motivate yourself, why not place a photo of your dream home in a highly visible area. That should keep you focused to work hard and save up for your down payment.
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