The first-time homebuyer’s guide: everything you need to know

February 22, 2022

A “first-time homebuyer” is an individual who, when applying for a mortgage, is not owning another residence in Hong Kong. Homeowners who have transferred the title of their property from joint to single ownership will also be accepted as a first-time buyer as they no longer own a home by definition. What’s more, the first-time buyer rules apply only to property used as a home. If you own just a non-residential property such as a parking space or industrial unit, you are effectively not a property owner under the rules and you will still qualify as a first-time purchaser. Even if you do hold ownership in a residence, you can sell your existing property quickly after you buy a new one to restore the status for your new purchase, and apply to the Inland Revenue Department for a refund of the stamp duty difference after the sale is completed. 

So why does it matter to be a first-time homebuyer? The obvious reason is the benefits you get to enjoy – saving on stamp duty, higher loan-to-value (LTV) ratios, eligibility for programs like the “Starter Homes” Pilot Scheme, no stress test required for white-form buyers, to name a few.  

Here we’ll cover what the key benefits are and how they work: 

 

Property value capped at HK$8 million for mortgage loans up to 90% LTV ratio  

In 2020, the Hong Kong government relaxed the cap on the property value eligible for a mortgage loan. As a first-time buyer, you can borrow up to 90% of your home’s value with a maximum property price at HK$8 million (the previous cap is HK$4 million). Mortgage banks, before approving a home loan, will stress-test a borrower’s ability to repay, by simulating an increase in mortgage rates by 3%, and the debt servicing ratio (DSR) must not exceed 50%. Under the new rules, however, banks can still approve a mortgage loan up to 90% LTV even if you fail the stress test, as long as you meet the base DSR requirements and pay an additional 10% charge on top of the basic insurance premium. 

 

Prime-based and HIBOR-linked mortgages 

In a prime-based mortgage plan, the effective interest rate is usually expressed as a bank’s prime lending rate minus a certain percentage. The common prime lending rates offered by banks in Hong Kong are: 5.5%, 5.25% and 5%. A HIBOR-linked mortgage, on the other hand, is priced according to the Hong Kong Interbank Offered Rate with an interest rate cap. That means when the HIBOR rate rises above the cap, it will limit the interest level you have to pay. With this extra protection against rising interest rates, HIBOR plans are more popular among homeowners in Hong Kong. 

 

Stamp duty 

If you’re buying property as an individual for the first time, you will only have to pay ad valorem stamp duty (AVD) of up to 4.25% of your property value, compared to a flat rate of 15% for everybody else. That means you can save more than 10% on stamp duty and you’ll be surprised at how much that actually is. Take an apartment worth HK$8 million for example: while the standard stamp duty amounts to HK$1.2 million, you – as a first-time buyer – only need to pay a 3.75% AVD totaling HK$300,000 and can thus safely put HK$900,000 back in your pocket. 

Value of property Stamp duty for first-time homebuyer
(rates at Scale 2)
HK$2,000,000 or below HK$100
HK$2,000,001 – HK$2,351,760 HK$100 + 10% of excess over HK$2,000,000
HK$2,351,761 – HK$3,000,000 1.5%
HK$3,000,001 – HK$3,290,320 HK$45,000 + 10% of excess over HK$3,000,000
HK$3,290,321 – HK$4,000,000 2.25%
HK$4,000,001 – HK$4,428,570 HK$90,000 + 10% of excess over HK$4,000,000
HK$4,428,571 – HK$6,000,000  3%
HK$6,000,001 – HK$6,720,000 HK$180,000 + 10% of excess over HK$6,000,000
HK$6,720,001 – HK$20,000,000 3.75%
HK$20,000,001 – HK$21,739,120 HK$750,000 + 10% of excess over HK$20,000,000
HK$21,739,121 or above  4.25%

Expenses in addition to down payment 

When you buy a property, there are upfront costs besides the down payment:  

Stamp duty 1.5% to 4.25% of property price
Agent commission Usually 1% of property price
Solicitor’s fees Approx. HK$3,000 to HK$10,000
Management fee deposit Approx. 2 to 3 months’ management fee + HK$1,000 utility deposit
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