XN000022-1997-01-28 — Page 7

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The effect of the HKMA's recommendation is that the loan to value ratio for residential properties with a value of over $12 million should be set at a maximum of 60%. However, to avoid an abrupt reduction in the amount which could be lent against properties which have a value of just over $12 million, the 60% requirement should be interpreted as meaning "the higher of 60% of value or $8.4 million". (This means for example that the amount which could be lent on a property valued at $13 million would be $8.4 million or 64.6%.)

Mr Carse added that the loan to value ratio should not be authorised institutions' only consideration.

"Institutions must ensure that adequate regard is paid to borrowers' ability to service their debt," he said.

"This is necessary to avoid borrowers overextending themselves, which increases the risk of default."

The amount of residential mortgage loans associated with co-financing schemes accounted for 3.8% of total mortgage lending of the 33 surveyed institutions at end- December. Of the $20.2 billion new loans approved during December, about 82.2% were accounted for by properties aged 15 years or below.

Lending for the purchase of properties in China increased by 4.4% to $6.3 billion in December. Gross loans made in December increased both in number (to 310 from 178) and in amount (to $401 million from $161 million). New loans approved in December decreased both in number (to 212 from 246) and in amount (to $157 million from $272 million).

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