Tips for new homebuyers | Budget: What is a first-time homebuyer| Mortgage Percentage and stress testing?

It is difficult to buy a home with full payment in Hong Kong unless you have assistance from parents. Applying for mortgage loans is necessary for home buying. The government disclosed in the Policy Address that to assist first-time homebuyers, it would immediately raise the caps on the value of the properties under the Mortgage Insurance Programme. What is the definition of first-time homebuyers? How to calculate mortgages? What is the monthly income required to pass the stress test? Here are tips for first-time homebuyers to calculate the amount for buying a home. 

What are first-time homebuyers? 

First-time home buyers refer to applicants for mortgage loans who hold no residential properties in Hong Kong. First-time homebuyers can be categorized into two types:

  • Type I: Those have no properties in Hong Kong and buy the first home for their own purposes and they are “true first-time home buyers” 
  • Type II: Those who jointly have properties with others and have no properties under their names in Hong Kong through changing the owner of properties or other means. They are “false first-time home buyers”
首次置業懶人包|上車預算:何為首置?點計按揭成數、過到壓力測試? 買樓

First-time home buyers | Save the stamp duty

To assist Hongkongers in buying homes and reduce speculation on home buying by foreigners in Hong Kong, the government requires that all non-first-time home buyers, non-Hong Kong permanent residents, companies or home speculators shall pay a stamp duty up to 15% to reduce speculation on home buying.

First-time home buyers are waived from AVD and are subject to rates at Scale 2. Take the buying of a home at HK$8,000,000 as an example, non-first-time home buyers shall pay a stamp duty of HK$1,200,000 while first-time home buyers only pay a stamp duty at 3.75%, namely HK$300,000.

Amount or value of the consideration (whichever is the higher)Rates at Scale 2
ExceedsDoes not exceed
$2,000,000$2,351,760$100 + 10% of excess over $2,000,000
$3,000,000$3,290,320$45,000 + 10% of excess over $3,000,000
$4,000,000$4,428,570$90,000 + 10% of excess over $4,000,000
$6,000,000$6,720,000$180,000 + 10% of excess over $6,000,000
$20,000,000$21,739,120$750,000 + 10% of excess over $20,000,000
$21,739,120 4.25%
首次置業懶人包|上車預算:何為首置?點計按揭成數、過到壓力測試? 買樓

First-time home buyers | 90% mortgage for a home of HK$8 million 

Based on last year’s Policy Address, in order to assist first-time home buyers, the Government would raise the caps on the value of properties under the Mortgage Insurance Programme of the HKMC Insurance Limited. The maximum value of properties, eligible for insurance coverage for mortgage loans with 90 per cent loan-to-value ratio borrowed by first-time homebuyers (those without any residential properties in Hong Kong upon application), was raised from $4 million to $8 million, and mortgage loans with 80 per cent loan-to-value ratio borrowed was raised from $6 million to $10 million. The latter may include self-use home-for-home mortgages.

HKMC Insurance Limited (HKMCI), a wholly-owned subsidiary of The Hong Kong Mortgage Corporation Limited (HKMC), also announced that amendments will be made to the Mortgage Insurance Programme (MIP) for completed residential properties, in order to provide assistance to homebuyers with immediate housing needs. 

Highest percentage of mortgage loans

Property value (HK$)Highest percentage of mortgage loansHighest percentage of mortgage loans for first-time home buyers
4 million90%90%
4 to 4.5 million80%-90% (with a maximum loan of 3.6 million)90%
4.5 to 6 million80%90%
6 to 8 million80%90%
8 to 9 million80%80%-90% (with a maximum loan of HIK$7.2 million)
9 to 10 million80%80%

First-time home buyers | Likely to pass stress testing

Banks will consider the “Debt Servicing Ratio” (DSR) of applicants when approving the application for mortgage loans. They generally require a maximum limit of 50% and shall meet the stress testing of banks. They measure the repayment ability of borrowers based on the stress testing plus an interest of 3%. Take the buying of a property of HK$8 million as an example: when the buyer applies for mortgage loans with 90%, namely a loan of HK$7.2 million, at annual interest rate of 2.625%, the monthly instalment is HK$28,919 and the monthly income of the applicant shall be at least HK$57,838 to be approved and granted mortgage loans. The stress testing is calculated based on the current interest rate plus 3% and requires that the DSR of applicants shall be below 60%. For the above example, if the interest rate of the mortgage loans is raised to 5.626%, the monthly instalment will increase to HK$41,447. Applicants shall have a monthly income of HK$69,078 to pass the stress testing.

Banks used to require that applicants for mortgage loans shall pass the stress testing. As mentioned above, the new regulation allows applicants failing to pass the stress testing to obtain 80% to 90% of mortgage loans through paying additional mortgage premiums, which significantly reduced the difficulties of the stress testing.

Calculation of mortgage

Take an installment-income ratio of 50% as an example, the minimum income requirements for homes with different prices, the first installment and monthly installments for mortgage loans with 90% are detailed as follows: 

Assuming the mortgage interest rate is 2.625% with installments for 30 years:

Property value (HK$)Maximum percentage of mortgage loansFirst installmentLoansMonthly installmentBasic DSR
DSR for stress testing
4 million90%0.4 million3.6 million$14,459$28,918$34,540
5 million90%0.5 million4.5 million$18,074$36,148$43,175
6 million90%0.6 million5.4 million$21,689$43,378$51,808
7 million90%0.7 million6.3 million$25,304$50,608$60,443
8 million90%0.8 million7.2 million$28,919$57,838$69,078
9 million80%1.8 million7.2 million$28,919$57,838$69,078
10 million80%2 million8 million$32,132$64,264$76,755
11 million50%5.5 million5.5 million$22,091$44,182$52,768
12 million50%6 million6 million$24,099$48,198$57,565

Expenses for first-time home buyers

Besides the first installment, buyers shall also pay other fees, including the stamp duty, the lawyer’s fees, the agency commission and the mortgage insurance. Details are as follows:

Other fees
Agency commissionGenerally, 1% of the property price
Stamp duty2.25% to 3.75% of the property price
Mortgage insurance1.15% to 4.35% of the mortgage loan and can be repaid in 30 years
Lawyer’s feeGenerally, approximately HK$3,000-10,000
Management fee and deposits for public servicesGenerally, 2-3 months of management fee plus deposits for public services of approximately $1,000

For example, for a unit with HK$5 million for first-time home buyers with 90% mortgage loans, the fees to be paid are as follows: 

First installment$500,000
Agency commission$50,000
Stamp duty$150,000
Mortgage insurance$225,113
Lawyer’s fee$10,000
Management fee$5,000
首次置業懶人包|上車預算:何為首置?點計按揭成數、過到壓力測試? 買樓

Tips on mortgage for first-time home buyers

Find the best interest rate through comparison: The interest rate of mortgage loans provided by banks range from 2.375 % to 2.625%. Many banks provide cash rebates at 1% to 2% of the loans for applicants. For first-time home buyers with a loan of HK$4 million, a rebate of 2% is HK$80,000, which is enough for several instalments and can reduce the buyers’ burden. Of course, different banks have different approval procedures and rebates. The financial conditions of applicants also have effects. First-time home buyers are advised to compare different banks and find the best mortgage interest rate.

Read More: Household decoration and design | Find good workers and decoration companies, 8 tips on decoration