The Premium Loan Insurance Scheme

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Hong Kong Mortgage Corporation announced in April that the Premium Loan Insurance Scheme will be launched in the second half of 2015, in order to promote greater leasing and sale activities involving subsidized housing. Subsidized flat owners who age 50 or above can apply for a loan to pay off the land premium on their flats.

Under the scheme, eligible borrowers will be granted loans against their properties as security primarily for settling premium payment to the Hong Kong Housing Authority, Hong Kong Housing Society and the Government. As long as the borrowers continue to own the properties, they are not required to repay the loan during their lifetime. In the event of a borrower passing away, the heirs will take over the servicing of the loans, or ownership of the units will be transferred to banks. After paying the land premium, owners can lease the property or sell them on the market freely.

The older you are, the higher the loan amount

The loan amount depends on a lot of factors, including the number of borrower(s), the age of the borrower(s), the value of the property, and the mortgage plan chosen. To apply for the scheme, the age of the property cannot exceed 50 years – if the maximum property age is exceed, each case will be considered on its individual merits. If the borrower is 50 years old, he could apply for a loan equivalent to about 17.9% of the property value; while a 65-year-old borrower can borrow 29.6% of the property value; and 46.4% for 80-year-old borrowers. The valuation of properties under HK$8million can reach 100%, but the higher the property value, the lower the valuation.

 

Interest rate of P-2.5%

Another example of the scheme is as the following: a 65-year-old borrower could apply for a loan equivalent to about 30 percent of the property’s value if he chooses a floating rate scheme. If he chooses a fixed rate plan, the maximum loan amount could increase by 15%, but details of the fixed interest rate will only be released later.

Out of the 380,000 flats under the Home Ownership Scheme, about 250,000 flats have yet paid the land premium. Initially, the scheme would cover flats under the Home Ownership Scheme and the Housing Society’s flat-for-sale scheme, and may be expanded to cover other schemes in stages.

In the press conference, HKMC chief executive Raymond Li Ling-cheung exerted his belief that such scheme would not affect property prices on the market. “If somebody wants to borrow a loan under the scheme, they would have to fork out the insurance premium first, which is about 2% of the property value, such cost is too high for short-term speculation. It is just not worth it”, says Li.

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