Mortgage borrowers should seek professional advice before making a purchase decision

2021-10-19

  • As mortgage terms are complicated, prospective buyers should not make any decision based solely on information provided by agents
  • Prospective buyers should seek direct financial advice from banks or other financial institutions

Prospective purchasers are reminded to carefully consider their own financial situation before making a property purchase decision. In most situations, whether a property transaction can be completed depends on the amount of mortgage loan that could be obtained.

Prospective purchasers should bear in mind that there are numerous factors affecting the approval of their mortgage applications.

Some prospective purchasers may ask property agents for mortgage information before making their purchase decision. However, according to the guidelines of the Estate Agents Authority (EAA), property agents must not make any statement to assure prospective purchasers that they will successfully obtain a mortgage loan or secure the desired mortgage terms to finance their purchase.

In fact, as mortgage terms are complicated and mortgage amounts vary from case to case, prospective buyers should not make any purchase decision based only on the information provided by property agents. Instead, they should seek direct financial advice from banks or other financial institutions.

Here, I would like to share a non-compliant case of a salesperson who gave assurance to his client on the amount of mortgage loan that could be obtained for a first-hand residential property.

The salesperson arranged for a prospective purchaser to inspect the residential property. The prospective purchaser said the price was too high, and unaffordable.

The salesperson then told her that she could obtain a mortgage loan of 80 per cent of the property’s price through a designated mortgage services company. Relying on this statement by the salesperson, the prospective purchaser decided to enter the deal.

After signing the Provisional Agreement for Sale and Purchase (PASP), the purchaser contacted the mortgage services company to apply for a mortgage loan. However, the company informed her that she could only obtain a loan of 50 per cent of the property’s price unless she could provide another property for refinancing. Being unable to get the necessary mortgage loan, she cancelled the transaction, losing her initial deposit and lodged a complaint with the EAA.

The EAA’s disciplinary committee was of the view that before arranging for the purchaser to sign the PASP, the salesperson should not have made any statement to assure the purchaser that she could successfully obtain a mortgage loan to finance her purchase.

The salesperson had failed to comply with the guidelines set out in Practice Circular No. 13-04 (CR) and thus was in breach of paragraph 3.2.1 of the code of ethics which stipulates that “Estate agents and salespersons should be fully conversant with the property agents’ ordinance, its subsidiary legislation, its Code of Ethics, and other guidelines issued by the EAA from time to time and shall observe and comply with them during their practice.”

Having considered the nature and gravity of the case, and the disciplinary record of the salesperson, the committee reprimanded him, and imposed on him a fine of HK$7,000 (US$900).

From this case, we can see that to avoid the risk of forfeiture of deposits owing to an insufficient amount of mortgage loan obtained, prospective purchasers should review their own financial situation and repayment ability carefully in advance of their purchase decision. Also, to play safe, they should make direct inquiries with banks or other professionals on mortgage plans and property valuations.

On the other hand, the EAA attaches great importance to reminding consumers of the important points to note before making a decision of purchasing a property, including the complexity of applying for a mortgage loan.

For example, we recently held an online public seminar and invited professional guest speakers to share useful tips and information regarding mortgages with the public. If you did not attend the seminar, you may watch the playback video on the EAA website.

Once again, I would like to remind prospective property purchasers not to rush into making a purchase decision. Please always consider your financial ability thoroughly before purchasing a property and do more research to avoid the risk of forfeiture of your deposit due to insufficient amount of mortgage loan being approved. Most importantly, please consult directly with banks or other financial institutions for the most up-to-date mortgage information.