It is also considered that Home Ownership Scheme mortgages should not be specified as liquid assets. Although it would add to their attractiveness to lenders, it would not be justified by reference to the rationale of specified liquid assets. These must be assets which any bank or deposit-taking company can realise easily, through an existing market place, if it experiences an unexpected demand for repayment of its deposits. Home Ownership Scheme mortgages can, in theory, be assigned by one lender to another. There is, however, no market for them (nor will one develop of its own accord), and so no means of calculating their market value; any bank wishing to sell such mortgages would be forced to approach individual banks, who would almost inevitably be the four large banks, which might not be willing to purchase the mortgages.
Implementation
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Purchasers of Phase I flats have signed agreements containing the existing formula. The existing ceiling rate of 9% p. a. will, therefore, apply to them for the first five years; the rate will then be recalculated under the existing formula, with the resulting rate being applied for another 5 years. The amended formula can be applied to flats in Phase II of the scheme, and also to flats built at Tuen Mun and Yau Tong under the first two projects of the Private Sector Participation Scheme. Government will, however, assess the adequacy of the formula and its effect on the affordability of flats built under the later phases of the Home Ownership Scheme, particularly if the selling prices of those flats have to reflect higher land and construction costs.
Recommendation
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The following formula is accordingly recommended for appli- cation to mortgages of flats build under Phase IIa of the Home Ownership Scheme and the Tuen Mun and Yau Tong Private Sector Participation Scheme projects:
(a)
(b)
the rate of interest to be the average of the 10 year residential mortgage interest rate quoted from time to time by the Bank of East Asia, Chartered Finance (HK) Ltd., the Hang Seng Bank and Wayfoong Finance Ltd., less 10%;and
the rate so calculated to apply for one calendar year, before being recalculated in the same way.
28
This formula will be reviewed in 12 months' time, or earlier if it fails to attract sufficient support from the financial sector.
CONFIDENTIAL #