Understanding Repayment and Negative Equity in Hong Kong’s Property Market

What Does It Mean to ‘Call’ a Loan?

Calling a mortgage loan occurs when a bank demands immediate repayment of the loan. According to the loan agreement, the lender reserves the right to demand early repayment from borrowers under specific circumstances. The miserable decline in property values in Hong Kong has pushed many mortgage borrowers into negative equity, meaning the property collateral's market value has plummeted below the outstanding mortgage balance.

The Rising Tension Between Borrowers and Banks

Recent data reveals a surge in negative equity cases, tripling to 32,073 during the first quarter of this year - marking a staggering 20-year high as property prices falter. This decline ignites concerns over loan-to-value (LTV) ratios outlined in loan agreements, raising potential default risks.

• Factors contributing to loan calls: financial position, credit demand, repayment capacity.
• HKMA reassures borrowers about banks’ reluctance to call loans as long as payments are regular.

Why Banks Hesitate to Call Loans

Banks often avoid calling loans to maintain goodwill with clients. Seizing properties can result in financial losses, generating bad debt and harming bank balance sheets. Experts explain that banks prefer to hold off on calling loans unless borrowers default, which could happen if liquidity issues escalate.

What Should You Do If Your Loan is Called?

If notified of a loan call, assess financial options immediately. Is selling the property feasible? Would refinancing with another bank yield better conditions? Competitive offers are emerging once more, with banks incentivizing refinances to entice mortgage borrowers.

• Consider cash rebates and low-interest loans from different banks.
• Bank pledges aim to expedite mortgage approvals amidst shifting market conditions.