HONG KONG (Reuters) – Hong Kong’s central bank said on Friday it had eased mortgage stress testing requirements for property buyers, in response to rising interest rates and a market downturn.
The Hong Kong Monetary Authority (HKMA) said it has asked banks to reduce interest rate stress testing requirements to 200 basis points from 300 basis points, with immediate effect.
Under the new requirements, the stress test aims to ensure borrowers have sufficient capacity to repay if interest rates rise by 200 basis points. The Capital Markets Authority said in a statement that the new level is considered prudent enough in terms of effective risk management of the mortgage lending business of banks.
“At this point, it has not been confirmed that the (Hong Kong) real estate market has entered a downturn,” a CMA spokesperson said, adding that the decision was not about counter-cyclical measures.
The decision came after Hong Kong banks raised their best lending rate by 12.5 basis points on Thursday, the first rate increase in four years.
“The relaxation is to support the market,” said Eric Tso, senior vice president of mortgage brokerage services mReferral. “It will offset part of the impact of yesterday’s rate hike and allow homebuyers to borrow more.”