Norman Chan: Launch of the 90% Fixed Rate Mortgage Scheme
Speech by Mr Norman Chan, Deputy Chief Executive of the Hong Kong Monetary Authority and
Executive Director of the Hong Kong Mortgage Corporation, at the signing ceremony to launch the
90% Fixed Rate Mortgage Scheme, Hong Kong, 19 January 2004.
* * *
Dr. David Li, ladies and gentlemen,
Let me first welcome you all to this signing ceremony to launch a composite product that embraces the
benefits of both the HKMC's Fixed Adjustable Rate Mortgage Programme ("FARM" Programme in
short) and Mortgage Insurance Progromme.
One of the focuses of the HKMC in product development has been the promotion of fixed rate
mortgages. The merits of this initiative are compelling as fixed rate mortgage products benefit
homebuyers, banks and the HKMC, and help to promote banking stability. To the homebuyers, fixed
rate mortgage offers them an additional choice of mortgage financing that provides certainty in the
monthly mortgage repayment amount and, more importantly, insulate them from adverse interest rate
movements during the fixed rate period. To the originating banks, their partnership with the Mortgage
Corporation provides an extra source of steady fee income and an effective avenue for marketing their
banking products to the mortgage borrowers. To the Mortgage Corporation, the initiative helps to
diversify its mortgage portfolio to include a good mix of floating and fixed rate mortgages.
Demand for fixed rate mortgages depends crucially on the level of fixed mortgage rate in relation to
the prevailing floating mortgage rate as well as the borrowers' expectations of the likely movements of
interest rates. Conducive market conditions helped the HKMC to launch the FARM Programme in
March 1998 and to acquire HK$1.2 billion of FARM mortgages in that year.
We are seeing market conditions favourable for promoting fixed rate mortgage products reemerging in
even stronger magnitude. With interest rate currently at a historical low level and being expected by
the market to bottom out and gradually stage an upward reversal, many homebuyers are looking for
fixed rate products that will enable them to lock in the current low mortgage rate for an extended
period.
The timing is very opportune as the abundance of liquidity in the banking system has enabled the
HKMC to secure fixed rate funding at a low cost. This has translated into very attractive fixed
mortgage rates to be offered to homebuyers.
Homebuyers taking up the products offered under this package will also enjoy extra benefits under the
HKMC's Mortgage Insurance Programme. In terms of coverage, mortgages relating to residential
properties transacted in both the primary and secondary markets will be eligible. The maximum
loanto-valuation ratio is set at 90%, same as that under the regular Mortgage Insurance Programme, to
reduce the downpayment burden of homebuyers. Furthermore, as the homebuyers will be insulated
from adverse movements in interest rate during the fixed rate period, the insurance premia are set at
very favourable levels.
The fixed rate mortgage products that we launch today combine the benefits of the HKMC's FARM
Programme and the Mortgage Insurance Programme. These benefits will help make home ownership
even more affordable to homebuyers.
I would like to take this opportunity to thank the Bank of East Asia for sharing our conviction in
promoting fixed rate mortgages under the FARM Programme and in working with our colleagues in the
HKMC in designing the fixed rate mortgage products. I am sure the additional privileges and incentives
offered by the Bank of East Asia will make the products even more attractive to the homebuyers.
Thank you.