First-time homebuyers want to get into the car. In the early years, "Lam Cheng Plan" and Paul Chan Mo-po announced in the 2022 Budget that mortgage insurance will be further relaxed ("Uncle Bo Plan"), so that homes worth more than 10 million can apply for high-percentage mortgages and enjoy up to 90% mortgage discount and lower ad valorem stamp duty discount. First-time buyers have always been very precious, but what is the real definition? How is the mortgage ratio calculated? What are the advantages of buyer tax?
Quickly jump to: Mortgage Discounts, Tax Benefits, Mortgage Application and Expenses, Definition of First Home Buyers, Three Major Advantages of First Home Buyers, Mortgage Insurance Instructions
First time home buyer bag
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Mortgage Offers
According to the latest mortgage insurance measures, first-time homebuyers who purchase existing residential units worth less than HK$10 million can obtain a mortgage loan of up to 90%. For properties worth between HK$10 million and HK$11.25 million, 80% to 90% of the mortgage loan can be obtained (the loan limit is HK$9 million). The relaxation of mortgage insurance measures implemented from September 2023 means that regardless of whether they purchase an existing property or an off-the-plan property, and whether they choose to pay in full or mortgage payment, first-home buyers are eligible to apply for a 90% mortgage loan, even if the property value is 10 million Hong Kong dollar.
Latest 2024: HKMA announces suspension of stress test requirements
Starting from February 28, banks will no longer require that property transactions with newly signed temporary sales and purchase contracts be subject to a stress test of interest rate plus 2%. This means that property transactions carried out from this date will no longer be affected by this test. However, applicants still need to pass the contribution-to-income ratio (DSR) to be eligible for mortgage approval.
What is the contribution-to-income ratio (DSR)?
The contribution-to-income ratio (DSR) is the bank’s basic income requirement for applicants. According to this requirement, the total monthly payment amount shall not exceed 50% of the applicant's income. For example, if the monthly income is HK$40,000, the monthly mortgage payment must not exceed HK$20,000 to ensure that it meets the relevant requirements. For second home mortgages or non-owner-occupied property mortgages, the upper limit of the payment-to-income ratio is adjusted to 40%.
After the "2024/25 Budget" was announced, it attracted widespread attention. According to the budget, all spicy taxes will be completely abolished starting from February 28, 2024. This includes Additional Stamp Duty (SSD), Buyer’s Stamp Duty (BSD) and New Residential Ad Valorem Stamp Duty (NRSD). For buyers of properties with a value of HK$3 million or less, whether they are speculators, overseas buyers, corporate buyers or non-first-time buyers, they only need to pay a stamp duty of HK$100.
Adjusted band of ad valorem stamp duty (Scale 2 rates) payable on the sale or transfer of residential and non-residential properties (including special concessions)
| Consideration amount or value [whichever is higher] | tax rate |
|---|---|
| Not exceeding $3,000,000 | $100 |
| $3,000,001 to $3,528,240 | $100＋10% with an amount exceeding $3,000,000 |
| $3,528,241 to $4,500,000 | 1.5% |
| $4,500,001 to $4,935,480 | $67,500 + 10% exceeding the amount of $4,500,000 |
| $4,935,481 to $6,000,000 | 2.25% |
| $6,000,001 to $6,642,860 | $135,000 + 10% with an amount exceeding $6,000,000 |
| $6,642,861 to $9,000,000 | 3.00% |
| $9,000,001 to $10,080,000 | $270,000 + 10% exceeding the amount of $9,000,000 |
| $10,080,001 to $20,000,000 | 3.75% |
| $20,000,001 to $21,739,120 | $750,000 + 10% with an amount exceeding $20,000,000 |
| $21,739,121 or above | 4.25% |
| Mortgage repayment period | The maximum period is 30 years, but the bank will adjust the final approved period based on the "age of the person" and the "age of the property". |
| H press VS P press | Unless required by individual houses, due to the current low housing interest rates, more than 90% of home buyers choose H-mortgage mortgages. |
| Credit history | Applicants must have a good credit record in order to successfully apply for a mortgage. |
| Choose a mortgage plan | To choose the most suitable and most favorable mortgage plan, the most important thing is to shop around. |
| Valuation | The bank will conduct a valuation on the property. If the valuation is insufficient, the mortgage loan amount may be affected. |
What is a first home purchase?
From the perspective of banks or mortgage companies, first-time homebuyers refer to people who do not own any residential properties in Hong Kong, whether they are people who have never bought a property in the past, people who have sold properties, or people who once owned properties with other people but have "lost their name". Currently, there is no residential property on hand, which also meets the definition of a first-time home buyer. However, if you plan to choose subsidized housing such as Home Ownership Scheme housing, the Housing Authority and other departments will be more strict in their definition of first home ownership.
Some experts remind that in addition to preparing down payment funds, first-time homebuyers must also set aside more money to cover expenses other than the down payment. Banks consider many factors when approving high-percentage mortgages, including increasing personal borrowing power, shortening payment periods and saving interest expenses, so getting a mortgage is no longer a dream.
Real first home? Fake first purchase?
Cao Deming, chief vice president of Meridian Mortgage Referral, pointed out that there are currently two types of first-home buyers:
- The first category is those who have never owned a property and are buying a property for the first time and the property is for self-occupation, which is called a "true first home buyer"
- The second category is those who once owned a property jointly with other people, and finally lost their names through close relatives transfer or other methods, and regained their first-home buyer status. The bank also regarded them as the first-home buyers, but in fact they were "fake first-home buyers."
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Three major advantages of buying your first home
Cao Deming mentioned that both types of first-home buyers enjoy three major advantages when purchasing properties. First of all, there are many types of properties available for purchase. In addition to buying private properties, you can also consider participating in the Home Ownership Scheme and Home Ownership Markets. Secondly, the Hong Kong Monetary Authority has restrictions on mortgage ratios. As for first-time homebuyers' self-occupied property loans, they can apply for a mortgage of up to 90%, and only need to pay 10% of the down payment to get the loan.
Assume that the property purchased is priced at NT$4 million. In theory, an ad valorem stamp duty of NT$15% must be paid, which is NT$600,000. However, buyers who are first-time buyers only need to pay stamp duty of NT$2.25% (NT$90,000) on the property price, saving up to NT$510,000 in tax. When buying a house, you may not have to pay it all in one lump sum, and you will need to borrow a mortgage loan from a bank. Generally, you can choose an interbank offered mortgage (H mortgage) or a prime rate mortgage (P mortgage). "H Mortgage" uses the Interbank Offered Rate (HIBOR) as the basis for calculating the interest rate. The mortgage plan provided by the bank is "H + X%".
For details, please refer to the Inland Revenue Department Stamp Tax Fee Schedule
H calculation method and benefits
For example, if one month's HIBOR is 2.22%, and the most affordable mortgage plan in the market is H+1.23%, the original H mortgage is 3.45%. However, since the H mortgage interest rate may rise rapidly, banks usually have an "interest lock limit" as the "top level", so the actual H mortgage interest rate may only be 2.375% or 2.475%. The P mortgage is "P -
More than 90% of homeowners use H button
According to data from the Hong Kong Monetary Authority, more than 90% of property owners currently choose the H-mortgage plan. Cao Deming pointed out that since H mortgages are protected by a capped interest rate, most property buyers will choose H mortgages when applying for mortgages to save interest expenses. "Unless it is expected that the pace of interest rate hikes in Hong Kong will accelerate, causing the H and P interest rates to rise. In the past few years, the P rate has soared to 8%, and the capped interest rate of the H mortgage is higher than that of the P mortgage. It doesn't matter if you choose the former." In addition, in the In terms of payment methods, you can choose interest rate, floating rate mortgage or fixed payment.
Fixed rate mortgage:
Cao Deming said that banks currently have fewer presumptive interest plans. Fixed-rate mortgages are not full-term fixed-rate mortgages, mainly for the first one to three years of the loan period, and then change back to floating-rate mortgages. When the market is experiencing a rising interest rate cycle, such as in the United States and Hong Kong, half of the borrowers will choose fixed-rate plans to avoid risks. However, generally the longer the fixed interest period, the higher the interest rate. Borrowers should carefully calculate the overall quarterly interest expense.
Adjustable rate mortgage:
At present, most plans are mainly floating-rate plans, that is, the monthly payment amount changes as the interest rate changes. When you are in a low-interest-rate environment, the advantage of choosing a floating-rate plan is that as interest rates fall, you will pay less monthly interest to the lending institution.
Fixed contribution:
In addition, first-time homebuyers with a fixed income can discuss with the bank to adopt a monthly fixed payment plan to repay the loan. Cao Deming pointed out that the advantage of fixed payment is that the monthly payment is budgeted. When the borrower applies for a mortgage loan, the bank will calculate the fixed monthly repayment amount based on the current interest rate and the loan term. However, it should be noted that the payment term may not be up to 30 years, and only about 25 years can be selected. Because when interest rates rise, the bank can extend the payment period from 25 years to 30 years before adjusting the payment amount in the next step.
The optimal payment period is 25 years
At present, the maximum payment period in Hong Kong is 30 years. Although the leverage of extending the loan period is relatively large, it can reduce the payment pressure. However, Cao Deming believes that according to the Meridian Mortgage Interest Rate Index (MMI), Hong Kong has been in a period of low interest rates for the past ten years, with the mortgage rate level being about 2.65%. It is expected that it will also fall at this low level in the next few years. Therefore, the mortgage term is shorter than the previous one. good.
He pointed out that lenders should do a good job in risk management and suggested that the optimal repayment period is 25 years because they can create their own "insurance controls". When the borrower encounters liquidity problems in the future and wants to remortgage or increase cash flow for additional living expenses, he or she can also request the bank to extend the payment period. Other owners with relatively loose funds also want to provide one floor early and then provide an additional floor.
There is also a way to advance the repayment period. You can invest a sum of funds to repay every few years outside the bank's penalty period (mostly two to three years) to avoid the penalty period. Additional handling fee. "As long as you save enough money, you can invest it in one lump sum outside the penalty period to achieve the effect of instantly deducting the loan principal. Saving interest immediately can shorten the payment period. The original payment period is 25 years, which may be shortened to 20 years have been paid.”
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What fees do you need to pay when buying a first-time home?
In fact, how much money do you need to prepare to get a car?
Cao Deming pointed out that for high-ratio mortgage holders, the cash flow on hand can only prepare a down payment, which is not enough. Because in addition to the down payment, other expenses include brokerage commissions, stamp duties, mortgage insurance premiums, legal fees and miscellaneous expenses (see Table 2). Taking the purchase of a property worth 4 million yuan as an example, in addition to the 10% down payment of 400,000 yuan, there is also a mortgage insurance premium of approximately 174,000 yuan and other expenses of approximately 140,000 yuan.
However, Cao Deming said that the mortgage insurance premiums collected by the mortgage-backed securities insurance companies can actually be borrowed from banks. Taking a floating-rate mortgage with a 30-year payment period as an example, the one-time insurance premium is 4.35% of the loan amount. This fee can be included in the mortgage loan, and some banks even provide discounts, which can save more in disguise.
He mentioned that mortgage premiums can also be paid in the form of annual insurance premiums without borrowing. "However, because the policy needs to be renewed every year, it is more expensive to pay it off in one lump sum for three to four years, so few people know how to use it. Therefore, it is recommended to pay it in one lump sum, which is more cost-effective." Cao Deming said.
Basic expenses for home ownership (down payment, mortgage insurance premium, brokerage commission, stamp duty, legal fees, miscellaneous expenses)
(Image source: MediaCorp Data Room)
Cao Deming reminded that some borrowers may not be approved for mortgage by the bank. In addition to having bankruptcy records, the most common minor mistakes are ignoring the last digits of credit cards and telecommunications service providers when transferring mobile phone numbers, which will affect credit. score. When you clear your debt, your credit situation will improve. Cao Deming suggested that if you plan to borrow a mortgage, you can consider applying for a mortgage before changing jobs; or you can apply for a mortgage after a three-month trial period after returning to a new job, which is more stable.
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