This picture taken on Aug 3, 2019 shows residential and commercial buildings in the Kowloon district foreground, with the skyline of Hong Kong Island past Victoria Harbour center in the distance. ANTHONY WALLACE AFP HONG KONG - The Hong Kong Monetary Authority has relaxed its mortgage stress test requirement for property buyers due to rising interest rates and a softening market.
The HKMA had told banks to reduce the interest rate stress testing requirement to 200 basis points from 300 basis points, with immediate effect, it said on Friday.
The stress test aims to make sure borrowers have sufficient repayment capacity if interest rates rise by 200 basis points. The HKMA said in a statement that the new level is considered to be sufficiently prudent in terms of the effective risk management of banks' property lending business.
An HKMA spokeswoman said that the decision was not related to countercyclical measures and that the Hong Kong property market has entered a downward cycle at this stage.
The decision was made after Hong Kong banks raised their best lending rate by 12.5 basis points on Thursday, the first rate hike in four years.
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Eric Tso, senior vice-president of mReferral Mortgage Brokerage Services said that the relaxation was for supporting the market. It will allow homebuyers to borrow more because of the interest rate hike yesterday, which will offset the impact of the hike.