TNAG-0912-FCO40-1122-Policy-on-housing-and-resettlement-in-Hong-Kong-1979 — Page 146

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CONFIDENTIAL #2

D

XCC(77)8

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As regards paragraph 14(b): the Working Party, after consulting the Exchange Banks Association, has received a general indication of the kind of terms customary in residential mortgage finance. The terms normally available on the open market at the present time are for 10 to 12 year loans, covering 70% to 83% of the assessed value or the sale price of the flat, at interest rates varying between 10% and 10 3/4% a year. These terms indicate the maximum amounts of debt which eligible households can incur and may be compared with open market prices of small flats as sampled by the Rating and Valuation Department. The comparison is set out in Annex D and shows fairly conclusively that, at the interest rates and on terms available on the open market, households earning incomes towards the lower and of the recommended income range would not be able to buy small flats built by the private sector unless they were able to make very large downpayments of the order of $50,000 to $80,000. This would represent an impossible strain on their resources given that the households would also have to contribute 40% of their income towards servicing debt repayments. The comparison also indi- cates that, for households earning incomes towards the upper end of the recommended income range, the choice is limited to smaller, cheaper (and possibly the least attractive) type of flats, unless they are able and willing to make substantial downpayments of between $30,000 and $40,000. The survey of ambition for home ownership indicated that households within the recommended group are simply not prepared to make downpayments of this size.

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Turning, therefore, to paragraph 14(c): the Working Farty considers that it is necessary to devise a scheme of mortgage facilities which would offer them terms better than those available on the open market. The Working Party recommends the following terms:

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(a) as regards the downpayment: a sum of $10,000 or 10% of the sale price, whichever is the higher;

(b)

as regards maturity: a period of 15 years;

(c) as regards interest rates: to be set initially at 8%

and to 9% a year, subject to periodic review and to any arrangement which would minimise the risk to the mortgagor of interest rate fluctuations.

These terms would enable eligible households to buy the kind

of flats described in paragraph 5(d) above provided they are, as intended,

sold at cost:

C.S. 166

CONFIDENTIAL #

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