【All-in-One Guide for HOS Flat Mortgage】 New HOS Flats VS WSM Flats: LTV Ratio, Repayment Period and Stress Test

Although both the Home Ownership Scheme (HOS) and the White Form Secondary Market Scheme (WSM) offer subsidized housing under the Housing Authority, they differ in some senses, with the former providing first-hand flats and the latter offering second-hand ones. Apart from the property nature and ancillary facilities, they also vary in the age of the property. If the WSM flats have been built for 20 years or above, buyers may not be able to apply for a mortgage with 90% Loan-to-Value (LTV) ratio as the flat may be close to the expiry date of its default guarantee period.

The Government is currently providing a mortgage default guarantee in respect of HOS flats covering 30 years from the date of the transaction. In fact, with the Government being the guarantor, eligible buyers of HOS flats can therefore apply for a mortgage with 90% LTV ratio and a maximum repayment period of 25 years without the need to pay mortgage insurance premium and to pass the stress test as the Government will cover up the cost if the buyer fails to repay the mortgage loan.

The Age of WSM Flats May Differ Significantly
Unlike new HOS flats which are located in a few particular districts, WSM flats enjoy an advantage in the choice of geographical location, making them a better choice for eligible buyers who have preferences on the location of the property. Yet, prospective buyers of WSM flats are suggested to pay close attention to the age of the flat as it may affect the LTV ratio and the repayment period of the mortgage. Some banks may even directly compute the maximum mortgage repayment period by deducting the age of the flat from the 30-year default guarantee period.

In general, banks are willing to provide a mortgage with 90% LTV ratio and a maximum repayment period of 25 years for WSM flats aged 19 years or below.

WSM Flats Aged 20 years or Above May Have a Lower LTV Ratio
For WSM flats aged between 20 and 29 years, banks providing mortgages need to bear a higher risk of having bad debt as the Government will only be the guarantor for the upcoming 10 years or so. Worse still, if the WSM flat’s default guarantee period has expired, the maximum outstanding balance of the mortgage will be capped at 60% of the property value. Given that the banks may reduce the LTV ratio or the mortgage repayment period for aged WSM flats, buyers may need to suffer a mortgage with the LTV ratio lower than 90% or a repayment period lower than 25 years. Generally these banks have a detailed table listing out the respective LTV ratios for WSM flats with different ages.

For example, if a buyer wishes to purchase a WSM flat with a 90% LTV mortgage loan and the flat’s default guarantee period will expire in 5 years, he needs to reduce the outstanding balance of the mortgage to 60% of the property price within this period, which will increase the monthly mortgage repayment and may pose a huge financial burden to the buyer. In addition, some banks may also require the mortgage applicant to provide income proof and pass the stress test before granting the mortgage loan.

If the Flat’s Default Guarantee Period has Expired, the Maximum LTV Ratio will Drop from 90% to 60%
For WSM flats of which the premium is not paid and the default guarantee period has expired, the maximum LTV ratio will drop from 90% to 60% and buyers are required to provide an income proof and pass the stress test before receiving the mortgage loan. As such, buyers intending to purchase WSM flats aged 30 years or above may need to prepare more capital for the down payment.

The mortgage LTV ratio for WSM flats with different age may vary from bank to bank.

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