O cuidado as abelhas Pisilnekmej

5.3.2.1 Financial Institutions Mortgage Policies Factor Variables 5.3.2.1.1 Loan-to-value Ratio Constraints (M85, M90, M95)

As discussed, the Hong Kong Mortgage Corporation introduced the Mortgage Insurance Program enabling financial institutions to lend residential mortgage loans at about 70 percent loan-to-value ceiling up to 85 percent in 2000, 90 percent in 2001 and even 95 percent in 2004. The time of all reliefs are shown as Figure 6 below. Relief in loan-to-value ratio constraints will directly affect the home buyers’ decision on the loan-to-loan-to-value ratio of residential mortgage loan. It allows home buyers to have more flexibility to construct their portfolios. The study by Leece (2000) indicated a significant and positive relationship between the relief in loan-to-value ratio constraint and the loan-to-value

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ratio of residential mortgage

relief in loan-to-value constraint is expected to h value ratio of residential mortgage

Figure 6 Average Loan-to-value Ratio

value Ratio Ceiling (June 1998 to October 2007)

Source: Residential Mortgage Survey,

residential mortgage loan for non-housing assets consumption. Therefore, each value constraint is expected to have a positive impact on the

residential mortgage loan.

value Ratio of Residential Mortgage Loan with Different Loan value Ratio Ceiling (June 1998 to October 2007)

Residential Mortgage Survey, Hong Kong Monetary Authority and the website of Hong Kong Mortgage Corporation Limited

2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10

Months

Average Loan-to-value Ratio

Max. loan-to-value ratio ceiling = 70% (Jun 1998 to Feb 2000) Max. loan-to-value ratio ceiling = 85% (Mar 1999 to Jul 2000) Max. loan-to-value ratio ceiling = 90% (Aug 2000 to Jun 2004) Max. loan-to-value ratio ceiling = 95% (Jul 2004 to Oct 2007)

housing assets consumption. Therefore, each ave a positive impact on the

loan-to-with Different

Loan-to-Authority and the website of

10 2 6 10 2 6 10

ratio ceiling = 70% (Jun 1998 to Feb 2000) ratio ceiling = 85% (Mar 1999 to Jul 2000) ratio ceiling = 90% (Aug 2000 to Jun 2004) ratio ceiling = 95% (Jul 2004 to Oct 2007)

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5.3.2.2 Non-financial-institution Finance Factor Variables 5.3.2.2.1 Co-financing Scheme (CFS)

As discussed, special mortgage arrangement for residential mortgage loan is mostly offered to home buyers in the primary market and for certain new residential properties. A significant number of home buyers are able to use co-financing scheme offered by developers during year 2001 to year 2003. (Fig. 7) Therefore, percentage of home buyers using co-financing scheme is added into the model. Co-financing scheme allow home buyers to borrow more money to finance their property and those co-financing schemes are always launched with some favorable causes such as refunding that will reduce the cost of residential mortgage debt. In addition, in the survey studied by Narayanamurthy (1995), special mortgage arrangement creates additional flow of residential mortgage loan and the loan-to-value ratios in residential mortgage loans increase due to the launch of special mortgage arrangement. Therefore, a positive relationship between the percentage of using co-financing scheme and the loan-to-value ratio of residential mortgage loan is expected in the study.

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Figure 7 Percentage of Home Buyers Using Co-financing Scheme in Hong Kong (June 1998 to October 2007)

Source: Residential Mortgage Survey, Hong Kong Monetary Authority

5.3.2.3 Personal Savings Finance Factor Variables 5.3.2.3.1 Mortgage Interest Rate (MR)

Mortgage interest rate is an essential issue that home buyers would concern before making any property purchasing decision. The higher the mortgage increase rate, the higher the cost of residential mortgage debt. The relationship between the mortgage interest rate and the loan-to-value ratio of residential mortgage loan has been widely studied. Most previous researches usually give a negative relationship. The loan-to-value ratio of residential mortgage loan is expected to be negatively affected by increase in the mortgage interest rate.

0 5 10 15 20 25 30 35

6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10

1998

Percentage

Months

Home Buyers Using Co-financing Scheme

58 5.3.2.3.2 Property Market Performance (PMP)

Residential property is an expensive commodity as well as an investment tool in Hong Kong. Property market performance will influence the loan-to-value ratio of residential mortgage loan. Riskier people prefer to use residential mortgage loans as a leverage to increase the rate of return on the property. During property market blooms, riskier people should increase the size of residential mortgage debt in order to lever the return.

(Baddeley, 2005) On the other hand, reducing the size of residential mortgage debt, i.e.

spending more personal savings, can reduce the opportunity cost of equity in the property. Since Hong Kong people are relatively riskier, the impact of positive property market performance on the loan-to-value ratio of residential mortgage loan is expected to be positive.

5.3.2.3.3 Stock Market Performance (SMP)

Return on the stock market is one kind of stochastic return on non-housing assets investment. The expected return on stock market may exceed the mortgage interest rate, and the saving rate in Hong Kong is always lower than the mortgage interest rate.

Therefore, there is an opportunity for home buyers to invest in the stock market while holding a higher loan-to-value ratios residential mortgage debt to free up more savings for non-housing assets investment. The relationship between the demand for extra residential mortgage debt and the stock market performance is different from home buyers to home buyers. (Brueckner, 1994; Jones, 1993; Turner, 1997) Due to the high risk preference of Hong Kong people, Hong Kong home buyers are expected to increase the loan-to-value ratio of residential mortgage loan to free up more savings for stock

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investment during stock market blooms. Therefore, a positive relationship is expected in the study.

5.3.2.3.4 Income Level (I)

Income level reflects the affordability of repayment of residential mortgage debt. The change in income level is very little in recent years and the range of the income level is between 144 and 153. (Fig. 8) The size of residential mortgage debt is constrained by income level due to non-housing assets consumption. With a higher income level, home buyers may borrow more for further consumption since they have the ability to have larger repayment each term. The study by Turner (1997), home buyers with high income will have a higher loan-to-value ratio of residential mortgage loan. Therefore, the relationship between the loan-to-value ratio of residential mortgage loan and income level is expected to be positive.

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Figure 8 Income Level for Employees up to Supervisory Level in All Industry Sectors in Hong Kong (Jun 1998 to Oct 2007)

Source: Wages & Labour Costs Statistics Section, Hong Kong Census and Statistics Department

140.0 142.0 144.0 146.0 148.0 150.0 152.0 154.0

6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10 2 6 10

1998

Income Level

Months

Income Level

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Table 3 Summary of Expected Signs of Coefficients of Independent Variables

Variables in Model Specification

Denoted by Proxied By Expected Signs

of Coefficients

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