This week both Citibank and BoCom announced that they would no longer be offering residential mortgages (in Bocom's case "traditional" mortgages). Although not as publicly announced, other banks have been tightening their lending criteria beyond the cooling measures imposed by the Hong Kong government. As a matter of anecdotal support, the bank which has loaned my most of my outstanding mortgages has told me that they will not lend me any more money.
The driving force behind the tightening of the mortgage market is the steady rise in the loan to deposit ratio in the Hong Kong banking system. For HKD deposits, the ratio has risen from around 65.1 in October 2009 to 85.9 in August 2011. A similar increase occurred in the all currency ratio (from 50.1 to 67.9). These ratios reflect an increase in total lending by Hong Kong banks (currently the highest since 2006 which was the earliest year in the HKMA table I was looking at).
Given the tightening of the mortgage market (higher deposits, more stringent borrower evaluation and higher interest rates) and lower turnover in the property market, one would expect that the value of mortgage loans would be falling. It's not. In fact the total value of outstanding residential mortgage loans hit an all time high in August.
Although speculative, I suspect that many borrowers (including myself) are unwilling to repay loans early. HIBOR linked loan taken out over the few years before the tightening began are still paying less than 1% on those loans. Not only is this a negative real interest rate and well below the yield on property, but new loans are more expensive (likely 2-2.25% depending on which bank you approach) and harder to obtain.
For my part, I have no intention of paying off any of the loans on my investment properties early and am increasingly coming to the view that I should not pay off the loan on my home early either. I can revisit if HIBOR starts rising.