Hong Kong lowers buyer stress test requirement for mortgages

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An attendant walks outside the entrance to Hong Kong Monetary Authority in Hong Kong

HONG KONG (Reuters) -Hong Kong’s de facto central bank has relaxed a mortgage stress test requirement for property buyers, it said on Friday, in response to rising interest rates and a softening market.

The Hong Kong Monetary Authority (HKMA) said it had told banks to lower the interest rate stress testing requirement to 200 basis points from 300 basis points, with immediate effect.

Under the new requirement, the stress test aims to ensure borrowers have sufficient repayment capability if interest rates rise by 200 basis points. HKMA said in a statement that the new level is considered to be sufficiently prudent in terms of the effective risk management of banks’ property lending business.

“At this stage, it has not been confirmed that the (Hong Kong) property market has entered a downward cycle,” an HKMA spokesperson said, adding that the decision is not related to countercyclical measures.

The decision came after Hong Kong banks raised their best lending rate by 12.5 basis points on Thursday, the first rate hike in four years.

“The relaxation is for supporting the market,” said Eric Tso, senior vice president of mReferral Mortgage Brokerage Services. “It will offset part of the impact from the interest rate hike yesterday and allow homebuyers to borrow more.”

(Reporting by Clare Jim; editing by Alexander Smith and Jason Neely)

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