evolution and development of mortgage services provided by banks
Post on 20-Dec-2015
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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
1. Objectives
2. Definition
3. Current Mortgage Situation in Hong Kong
4. Considerations in Approving Mortgage
5. General Mortgage plan
6. Application of mortgage plans in different banks
7. Case Study
8. Conclusion
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
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. 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
Number of Residential Mortgage Loans(including Securitised Mortgage Loans)
70000
71000
72000
73000
74000
75000
76000
77000
78000
Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07
Statistics from The Hong Kong Mortgage Corporation Limited: There is a decline in the number of residential mortgage loans
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 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
Credit Assessment Income Situation Risk Management
4. Considerations in Approving Mortgages
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
For individual borrowers: Latest tax demand note Bank book /statements showing salary
income Employment contract/latest salary slip
Income Proof Requirements
For company borrowers: Latest tax demand note Audited financial statements/latest management
accounts Bank book/bank statements
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
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 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 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
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
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 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 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
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
HSBC – Home Mortgage Loans Bank of China Standard Chartered Bank
HSBC
Names of mortgage plans:
- HighAdvance mortgage
- Free Choice Mortgage
- Trading up
- Investor Mortgage
- Refinancing
HighAdvance mortgage
Loan ratio / Loan amount:
- Up to 95% of the properties' values
Application: Simple
Free Choice Mortgage
Loan ratio / Loan amount:
- Minimum mortgage loan amount of
HK$500,000
Application: New mortgage loans only
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
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
Loan ratio / Loan amount:
- A wide range of home-related loans with
home insurance
Application:
- Simple and easy
- HSBC assistance
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
For Primary market and Secondary market
Loan ratio / Loan amount: - Up to 95% of the properties' values
Application: No charges
Residential Mortgage Programmes
HIBOR Mortgage Scheme
Loan ratio / Loan amount:
- Up to 95% of the propertites' values
Application: No charges
"All you want" Mortgage Scheme
Loan ratio / Loan amount: N/A
Application: Simple
"Smart" Mortgage Scheme
Loan ratio / Loan amount: N/A
Application: Simple
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 Bank
Application:
- No restriction on borrowers' age
- Quick approval on application
7. 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 STUDY
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
!
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
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
Here are the simplest four situations:
High loan amount needs higher interest rate and long repayment plan needs higher interest rate
8. Conclusion
1. Fast means
E.g. The 95% Mortgage Insurance Programme provided by Standard Chartered : one hour to approve the applications of applicants
The approval of mortgage plans will be faster
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
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
Trend of mortgage plans: on the track of innovation, tailored made to applicants
~ Marks the beginning: MortgageOne of Standard Chartered
Feature:
~ Customers can save more on mortgage interest payments
Those mortgage plans will be more suitable for people in the future
End of the presentation
Thank you for your attention.