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Reply:
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There is no guideline issued by the Hong Kong Monetary Authority on the term (i.e. duration) of mortgage loans in Hong Kong. In the past three years, most banks offered mortgage loans with a maximum term of 20 to 25 years. The recent offer of 40-year mortgage loans for a specific new property development by an individual bank is an isolated case so far.
Banks generally set a cap, ranging from 30 to 40 years in most cases, on the sum of the loan term and the age of the property in question. For example, if the bank sets the cap at 40, it will normally offer a maximum of a 25-year mortgage to an applicant if the property is 15 years old. Most banks also take into account the age of the applicant in determining the maximum mortgage term. Normally, the loan term will not extend beyond the retirement age of the applicant.
Our understanding is that the bank mortgage repayment terms offered in the United Kingdom, United States and Japan mostly fall within the range of 25 to 40 years. Individual non-bank institutions are understood to have offered mortgage terms of 45 years or longer.
All other things being equal, the risk of a loan will in theory increase with the length of the term. More uncertainties will come into play during the life of a longer term mortgage loan, e.g. the borrower's financial position may change, interest rates may be subject to wider fluctuation, maturity mismatch may be more significant, etc.
It is unlikely that the offer of a 40-year mortgage repayment term will give rise to more speculations on newly completed flats. Borrowers who apply for a 40-year mortgage loan tend to be genuine home-buyers who cannot afford a large amount of monthly repayment in the early life of the mortgage loan. In general, speculators are believed to be less dependent on long-term bank financing.
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