Evolution and development of mortgage services provided by banks
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Evolution and Development of Mortgage Services Provided by Banks. Group Members. Mike Chau Yick Cheung (053035) Cheryl Lam Ah Kuen (053037) Juvenia Luk (053049) Ivy Cheung Mei Lin (053061) Barbara Kwok Ching Ying (053107) Kendal Tai Siu Cho (053186). Outline. Objectives Definition

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Evolution and Development of Mortgage Services Provided by Banks

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Evolution and development of mortgage services provided by banks

Evolution and Development of Mortgage Services Provided by Banks


Group members

Group Members

Mike Chau Yick Cheung (053035)

Cheryl Lam Ah Kuen (053037)

Juvenia Luk (053049)

Ivy Cheung Mei Lin (053061)

Barbara Kwok Ching Ying (053107)

Kendal Tai Siu Cho (053186)


Outline

Outline

  • Objectives

  • Definition

  • Current Mortgage Situation in Hong Kong

  • Considerations in Approving Mortgage

  • General Mortgage plan

  • Application of mortgage plans in different banks

  • Case Study

  • Conclusion


1 objectives

1. Objectives

  • Since there are strong competitions on mortgage plans in banks, we think there is a need to let our classmates know more about this issue

  • To understand more about the current mortgage operation and plans in Hong Kong

  • To understand the recent development and innovation of mortgage in Hong Kong

  • To demonstrate how can people apply a mortgage plan


2 definition

2. Definition

  • Mortgage is defined by Section 2 of the Conveyance and Property Ordinance as "a security over land for securing money or money's worth".


2 definition1

2. Definition

  • Every mortgage transaction comprises two basic elements:

  • The granting of a loan/facility by a lender to a borrower; and

  • The provision of security over land by the mortgagor (who may or may not also be the borrower) for the repayment of certain debts owed to the lender.


3 current situation in hk

3. Current situation in HK

  • Statistics from The Hong Kong Mortgage Corporation Limited:

  • There is a decline in the number of residential mortgage loans


3 current situation in hk1

3.Current situation in HK

  • Hong Kong Monastery Authority’s monthly survey of residential mortgage lending:

  • New mortgage loans drawn down during February decreased by 30.5%


3 current situation in hk2

3. Current situation in HK

  • The Mortgage War:

  • War or peace: banks split over mortgages (STANDARD), 12 March 2007

  • HSBC rate cut set to spark mortgage war (STANDARD), 23 February 2007

  • BOCHK keeps lead in mortgage market (STANDARD), 10 April 2007


4 considerations in approving mortgages

4. Considerations in Approving Mortgages

  • Credit Assessment

  • Income Situation

  • Risk Management


Credit assessment

Credit Assessment

HKMA requires banks

  • To collect and give careful consideration to all relevant information on every loan application.

  • To consider the borrower's integrity and employment aspects

  • Corporate entity:

  • Authority to borrow

  • Business expertise

  • Viability of its business

  • Management capability

  • Prospects of the industry


Income proof requirements

Income Proof Requirements

For individual borrowers:

  • Latest tax demand note

  • Bank book /statements showing salary income

  • Employment contract/latest salary slip


Income proof requirements1

Income Proof Requirements

For company borrowers:

  • Latest tax demand note

  • Audited financial statements/latest management accounts

  • Bank book/bank statements


Credit risk management

Credit risk management

  • To protect themselves - through prudent credit risk management

  • For example, requiring security for the loans

  • In general procedure, banks stick to the practice of not going beyond 70% of the valuation of the property

  • Use mortgage insurance programme to reduce the risk when the % loan to value is exceed 70%


The mortgage insurance programme

The Mortgage Insurance Programme

  • Hong Kong mortgage market was originally provided only 70% of loan to value to the clients

  • In March 1999, it expand to 85%

  • August 2000, it expand to 90%

  • And July 2004, it further expand to 95% and this carry on until now

  • These change is good to consumer but creates more risk to banks


The mortgage insurance programme1

The Mortgage Insurance Programme

  • Mortgage insurance programme is then provided

  • It is an arrangement that protects lending banks against the risk of mortgage payment default by the borrower

  • The risk of the part which exceed the 70% value to loan

  • Will be beard by Hong Kong Mortgage Corporation Limited (HKMC)


The mortgage insurance premium

The Mortgage Insurance Premium


The mortgage insurance programme2

The Mortgage Insurance Programme

  • It applicable to private, owner-occupied residential properties

  • The programme enables the bank to lend up to 95% of the value of the property depending on the loan size

  • <HK$12,000,000


5 general mortgage plans

5. General mortgage plans

  • Regular installments of a fixed amount

  • The interest rate is usually changes according to prime rates

  • The repayment period < 30 years

  • Loan is <70% of the value of the house


Some new changes

Some new changes

  • Bi-weekly repayment plan

  • Under a fortnightly repayment plan

  • The mortgage repayment period can be shortened

  • Savings on overall interest may also be achieved


Some new changes1

Some new changes

  • Progressive repayment plan

  • The amount of repayment installments accelerates periodically,

  • To speed up repayment of the whole loan

  • Saving the total amount of interest payable

  • This plan is suitable future periodic income increases and want to shorten loan period


Some new changes2

Some new changes

  • Hibor (Hong Kong Interbank Offered Rate)

  • Interest rate:

  • Floating with (1month, 3months, 6months and 12 months) Hong Kong Interbank Offered Rate

  • usually will have a adjustment of 0.5%~1%

  • Loan amount:

  • Maximum 95% of the appraised value or transaction amount of the property is lower


Evolution and development of mortgage services provided by banks

  • HIBOR flow with 3 month Hibor

  • Max with P -2.75%

  • Market interest rate=

    P -2.75%~P -3%


6 applications of flexible mortgage plans in different banks

6. Applications of flexible mortgage plans in different banks

  • HSBC – Home Mortgage Loans

  • Bank of China

  • Standard Chartered Bank


Evolution and development of mortgage services provided by banks

HSBC

  • Names of mortgage plans:

    - HighAdvance mortgage

    - Free Choice Mortgage

    - Trading up

    - Investor Mortgage

    - Refinancing


Highadvance mortgage

HighAdvance mortgage

  • Loan ratio / Loan amount:

    - Up to 95% of the properties' values

  • Application:Simple


Free choice mortgage

Free Choice Mortgage

  • Loan ratio / Loan amount:

    - Minimum mortgage loan amount of

    HK$500,000

  • Application: New mortgage loans only


Trading up

Trading up

  • Loan ratio / Loan amount:

    - Up to 95% of the property's value

    - Up to 70% with a normal mortgage loan,

    with a variety of home-related loans

  • Application:

    - Simple with HSBC assistance


Investor mortgage

Investor Mortgage

  • Loan ratio / Loan amount:

    - Up to 70% of properties' values

    - Minimum borrowing amount HK$200,000

  • Application:

    - Easy and quick

    - Rental and assets are also counted as

    incomes

    - No annual reviews are needed


Refinancing

Refinancing

  • Loan ratio / Loan amount:

    - A wide range of home-related loans with

    home insurance

  • Application:

    - Simple and easy

    - HSBC assistance


Bank of china

Bank of China

  • Names of the mortgage plans:

    - Residential mortgage programmes for Primary market and Secondary market

    - HIBOR Mortgage Scheme

    - "All you want" Mortgage Scheme

    - "Smart" Mortgage Scheme


Evolution and development of mortgage services provided by banks

Residential Mortgage Programmes

  • For Primary market and Secondary market

  • Loan ratio / Loan amount:

    - Up to 95% of the properties' values

  • Application: No charges


Hibor mortgage scheme

HIBOR Mortgage Scheme

  • Loan ratio / Loan amount:

    - Up to 95% of the propertites' values

  • Application: No charges


All you want mortgage scheme

"All you want" Mortgage Scheme

  • Loan ratio / Loan amount: N/A

  • Application: Simple


Smart mortgage scheme

"Smart" Mortgage Scheme

  • Loan ratio / Loan amount: N/A

  • Application: Simple


Standard chartered bank

Standard Chartered Bank

  • Name of the mortgage plan:

    - 95% Mortgage Insurance Programme

  • Loan ratio / Loan amount:

    - Up to 95% of the properties' values

    - Loan amount exceeds HK$12,000,000

    - The maximum loan-to-value ratio is 85%


Standard chartered bank1

Standard Chartered Bank

  • Application:

    - No restriction on borrowers' age

    - Quick approval on application


7 case study

7. CASE STUDY


Case study

CASE STUDY

  • Mr. Bean is a self-employed professional lawyer and his job provides him a stable income at round HK$150,000 each month. He has targeted wonderful dream-house Evelyn Towers (雲景臺), at North Point Hill. The building is well known for luxury and it must be very expensive

  • Before he is going to join any mortgage plan, he decides to valuate his targeted house price. The following diagrams shown below are the process of the property that Mr. Bean has conducted the property valuation through the Bank of China’s website


Case study1

CASE STUDY


Case study2

CASE STUDY

  • After that, the house possibly costs him about HK$10,000,000

  • He has inquired the banks for the various mortgage plans to suit him

  • There are his main considerations for the offered Mortgage plans


Evolution and development of mortgage services provided by banks


Case study3

CASE STUDY

  • No matter Mr. Bean has decided to join the 95% mortgage plan or the general one, he still needs to considerate with the amount of installment repayment in each month

  • If the amount of installment repayment in each month is more than his half of his monthly income (Optimal Installment amount = HK$75,000), he fails to apply the any mortgage plans

  • Fortunately, roughly estimated maximum loan amount provided by the bank’s website is more than enough for him to buy his dream house


Case study conlcusion

CASE STUDY- CONLCUSION

  • For our conclusion, Mr. Bean is less likely to apply 95% Mortgage plan since it involves large amount of loan.

  • The banks treat this transaction as a special case if the loan amount is more than 7 millions dollars.

  • For the risk management, the interest rate is not only associated with the loan amount, but also the repayment method and repayment period.


Case study interest rate

CASE STUDY- interest rate

  • Here are the simplest four situations:

  • High loan amount needs higher interest rate and long repayment plan needs higher interest rate


8 conclusion

8. Conclusion

1. Fast means

E.g. The95% Mortgage Insurance Programme provided by Standard Chartered : one hour to approve the applications of applicants

 The approval of mortgage plans will be faster


Evolution and development of mortgage services provided by banks

2. Different repayment plans

  • Banks offer a number of repayment options to suit the different needs and budgets for their customers,

  • E.G.

  • Bi-weekly repayment plans

  • Flexible prepayment and redrawal plans

  • Progressive repayment plans

  • Delayed principal repayment plans

  • Straight-line repayment plans


Evolution and development of mortgage services provided by banks

3. From July, 2004 on

Loan-to-value ratio (LTV ratio) :

Increased from 70% to 95% in the past

 Amount of mortgage greatly increased


Innovation

Innovation

  • Trend of mortgage plans: on the track of innovation, tailored made to applicants

    ~ Marks the beginning: MortgageOne of Standard Chartered


Evolution and development of mortgage services provided by banks

Feature:

~ Customers can save more on mortgage interest payments

 Those mortgage plans will be more suitable for people in the future


Evolution and development of mortgage services provided by banks

End of the presentation

Thank you for your attention.


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