The Hong Kong Monetary Authority today announced the results of the latest survey on residential mortgage loans in negative equity. At the end of June, their number had increased to about 106,000 with a value of $165 billion.

The unsecured portion of these loans is estimated at about $36 billion.

At the end of March, the number of negative equity residential mortgage loans had been about 83,000. They were then worth about $135 billion, with an unsecured portion of $29 billion.

Rise in number, value attributed to SARS' impact

"The sharp rise in the number and amount of mortgage loans in negative equity in the second quarter is not surprising," said David Carse, the Monetary Authority's Deputy Chief Executive.

"It reflects the downward shift in property prices which was aggravated by the SARS outbreak," he added.

"Nevertheless, it is encouraging that the ratio of delinquent negative equity loans has declined. The situation is one which requires close attention by authorised institutions."

Delinquent negative equity mortgage loans' growth slows

The amount of delinquent negative equity residential mortgage loans grew at a slower pace than the growth in total negative equity loans. As a result, the three-month delinquency ratio of negative equity loans improved further, to 2.28% at the end ofJune from 2.56% at the end of March.

Many of the new negative equity loans are only marginally in negative equity. This, coupled with a reduction in outstanding balances due to repayments, meant that the overall loan-to-value ratio on negative equity loans remained stable at 128%. 

The average interest rate charged on negative equity loans fell to 1.07% below the best lending rate at the end of June compared with 0.88% below best lending rates at the end of March.

More negative equity homeowners pay less in interest

In all, about 62% of negative equity homeowners are paying an interest rate below best lending rates compared with 52% a year ago. 

This reflects the impact of the refinancing and restructuring of loans in negative equity as well as the lower interest rates already carried by the loans that have recently moved into negative equity.