THINGS TO KNOW BEFORE BUYING A UNIT IN AN OLD BUILDING

Last time, we discussed the issues and solutions with taking a mortgage on “haunted homes”. Let's turn our focus on another type of property that's notoriously difficult to secure a mortgage for: homes in old buildings. How old is “old” for a building? And how do banks deal with mortgage applications for these homes? Since the establishment of Hong Kong as a free port, it has evolved from a quiet fishing village to a global metropolis, while its residents have moved out of run-down areas and into modern residential buildings. Today, some of these buildings—especially tong laus and western buildings— are over 50 years old, and could soon be demolished for renewal. Many investors are therefore drawn by the future potential of these properties. But if you're also thinking about purchasing a unit in an old building, make sure you understand the problems that you might face when applying for a mortgage. The first you need to know is that banks calculate mortgage terms based on an “age 70 (or 75) minus” formula, meaning that they take the number 70 or 75 and subtract the age of the building or the loan borrower from it, depending on which calculation comes up with a smaller number, with the maximum term being 30 years. To give a simple example, if Mr. Chan, a 30-year-old man, is considering buying a property in a 55-year-old building, and the bank uses the “age 75 minus” formula, the maximum term he would be given for the mortgage is 20 (75-55) years, even though he's young. On the other hand, if we have a scenario where Mr. Chan is 60 years old, the bank would subtract his age (instead of the age of the building) from 75, and give a 15-year mortgage term. However, if Mr. Chan's son signs up to be a co-sponsor, some banks would be willing to make the calculations based on the age of the younger sponsor and thus offer a longer mortgage term, given that the monthly income of the sponsor is higher than the mortgage payment. It's important to point out that all that's said above only applies for housing estates, standalone buildings, tong laus and western buildings. Village houses are subject to even stricter rules, including a formula of “age 55 minus”. So be extra careful when you purchase an old property, because with a shorter mortgage term, you will be required to have a higher salary and pay bigger monthly instalments. The mortgage terms can also be different for the White Form Secondary Market Scheme or Green Form buyers wanting to purchase a second-hand Home Ownership Scheme (HOS) flat with premium unpaid. Generally speaking, the mortgage default guarantee period for HOS flats is 30 years from the date of first assignment. If the building is under 19 years old, the bank can approve a 25-year mortgage term and a 90% LTV loan; in addition, the application does not need to pass a stress test or provide proof of income. The approved mortgage term or the LTV ratio will be reduced if the building is over 19 years old. If a 70-year-old person purchases a HOS flat in a building under 19 years old, they may still get the best mortgage term (25 years) with the highest LTV ratio (90%), given that the government is still sponsoring the flat.