Purchasing a property to many people is a lifetime investment requiring substantial amount of savings. Most buyers will need to apply for a mortgage loan to finance their purchase. A well-planned budget and obtaining accurate information about a mortgage loan before committing the property purchase are therefore very important steps to take for the prospective purchasers.
When a client asks about a mortgage loan, a professional estate agency practitioner should not hastily provide mortgage information to the client, or assure the client that he will be able to obtain the mortgage loan he needs, or make any guarantees on the terms of the mortgage loan.
There have been cases of property agents assuring prospective purchasers that a certain amount of mortgage loan could be obtained, however, in the end, only a lesser amount of the loan was approved. This not only caused a loss to the prospective purchasers but subjected the property agents to disciplinary action by the Estate Agents Authority (“EAA”).
During the first 11 months of 2018, the EAA has received a total of 23 complaints regarding property agents providing misleading information on mortgages, which is an increase of 28 per cent compared to the 18 cases received in the same period in 2017.
Taking this opportunity, I would like to share two relevant complaint cases we received in the past. In the first case, a property agent introduced a new serviced apartment to a prospective purchaser and reassured the purchaser that she could definitely obtain a mortgage loan of 85 per cent of the purchase price from the lending institution appointed by the developer.
However, a mortgage loan of only 40 per cent of the property price was eventually approved due to the purchaser’s own financial situation. As a result, the purchaser was unable to complete the transaction and her deposit was forfeited to the developer.
The EAA Disciplinary Committee was of the view that the property agent should not have assured the purchaser that she would be able to obtain a certain amount of mortgage loan. The committee decided to reprimand the property agent and suspend his licence for a month. A condition requiring him to obtain 12 points in the EAA’s Continuing Professional Development (CPD) Scheme in 12 months was also attached to his licence.
In another case, a property agent acted for both parties in a second-hand residential property transaction and the property concerned was subject to existing tenancy. After price negotiation, the property agent arranged for the purchaser to enter into a provisional agreement for sale and purchase. Before signing of the agreement, the property agent assured the purchaser that he could obtain a mortgage loan of 7 per cent of the purchase price.
The purchaser later inquired with three banks for such a mortgage loan but was rejected by all. Finally, the purchaser was only granted a mortgage loan of 50 per cent of the purchase price, as the government had set a cap at this level for mortgage loans of tenanted properties.
The EAA Disciplinary Committee was of the view that the property agent made a representation about a mortgage loan without proper basis. She failed to protect and promote the client’s interests and be fair to all parties involved in the transaction. The committee decided to reprimand the property agent, suspend her licence for seven days and attach conditions to her licence, requiring her to obtain 12 points in the CPD scheme within a year.
Last but not the least, I would like to offer some advice to prospective property buyers. Before deciding to buy a property and put down a deposit, buyers should ascertain their own financial position, loan repayment ability and the financial arrangement suitable to their own needs. They should also pay attention to the latest policies on mortgage loans issued by the Hong Kong Monetary Authority. When choosing a bank or financial institution for financing the purchase, consumers should also consider a series of factors, such as the terms for repayment, the criteria for determining interest rates, the date for implementing interest rate adjustments, the issues arising from arrears in instalments, the early redemption penalties and the notice period required. In addition, mortgage handling fees, legal fees, insurance fees and charges for the valuation report, should also be noted.