Banks tighten scrutiny of mortgage loans to workers as jobs in virus-hit sectors on the line

By Sandy / | March 23, 2020 10:47 AM SGT
Hongkongers are facing a crunch time as the coronavirus pandemic induced the deepest labour-market retrenchment since 2011, making lenders wary of lending to people in the most vulnerable sectors.
Some 134,100 people lost their jobs last month, according to government data, driving the unemployment rate up for a fifth straight month to a nine-year high of 3.7 per cent. Within the consumption and tourism-related segment, the rate has reached the worst since the global financial crisis.
As the likes of Cathay Pacific, Sa Sa International and Regal Hotel cut jobs and put more on the line amid a slump in business, banks have been tightening their scrutiny or rejected mortgage-loan applications from the afflicted sectors, some industry professionals said.
"More banks are exercising restraint in granting mortgages to borrowers employed in these high-risk sectors," said Raymond Chong, managing director at mortgage referral brokerage StarPro Agency, declining to identify the lenders. "One bank has already thrown in the towel, ditching applications from borrowers employed in the airline service industry."
Banks approved HK$24.9 billion (US$3.2 billion) of new mortgage loans in January, shrinking every month from HK$45.3 billion in August, according to data published by the monetary authority.
The tightening of credit assessments comes as cracks in the economy widened, raising concerns the property bubble will burst if the pandemic pushes the global economy into a recession.
Lenders contacted by the South China Morning Post said they are vetting mortgage applications according to guidelines.
Loan applications are considered on a "case-by-case basis" based on various factors, according to HSBC, including applicant's financial status, past record and ability to repay the loan. Its subsidiary Hang Seng Bank takes into account different factors including the condition of the property and the applicant's creditworthiness.
Bank of China (Hong Kong) follows its loan policy and guidelines, while Citigroup adheres to its internal risk management policy.
There are some 'red flags' that alert banks to raise the bar on borrowers, Chong said.
For applicants who have accumulated significant unpaid leave, he said banks tend to assume their employment is at stake, and would discount their wages as non-recurring income.
"Non-recurring income will not be considered in mortgage lending if the borrower aims at a 90 per cent loan-to-value ratio," he added.
Some lenders are more concerned about a person's solvency and monthly repayment burden when it comes to borrowers with commission-based income, Chong said.
For property or insurance agents whose take-home pay is typically anchored by sales commissions, banks traditionally take the average of their commissions in the last six months to assess their income level.
Recently, these applicants are being asked to prove they have received adequate commissions in the past 12 months to pass the debt-to-income ratio and stress test, Chong added.
Last month, Cathay Pacific asked all its 27,000 workers to take three weeks of unpaid leave between March and June because of collapsing demand caused by the Covid-19 outbreak.
Hong Kong Airlines said it would lay off 400 employees. It also asked the rest of its staff to take a minimum of two weeks no-pay leave or work three days a week until the end of June, to trim costs.
Retail sales, battered by a steep drop in mainland tourists, tumbled 21.4 per cent in January from a year earlier, the government said. The Retail Association has warned the sector would see at least 5,600 redundancies as consumption and tourism-related activities slid.
The hospitality sector has not been spared. Some luxury hotels in Hong Kong saw average occupancy rates drop to below 10 per cent in the first two months this year as the epidemic killed demand.
Regal Hotels International axed at least 200 staff in 10 hotels last month after the hotelier asked its employees to take four days of unpaid leave per month.
Facing dwindling property transaction volumes, agents said their commission revenue, a major component of their salary, has plunged by as much as 80 per cent since the outbreak of the Covid-19 in late December.
"Banks are becoming prudent about borrowers working in industries that are directly affected by the outbreak of coronavirus, like taxi drivers or operators of restaurants," said Ivy Wong Mei-fung, a managing director at Centaline Mortgage Broker.
"Unlike in previous years, banks are being less aggressive in granting home loans at the beginning of the year," she added.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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