Table of Contents
1. Definition and Origin Background
"Breathing Plan" is a nickname for a specific high-risk mortgage product in the Hong Kong real estate market. Literally translated, it means "a plan that you can apply for just by breathing." Its core feature is that the approval conditions are extremely loose, and it is even joked that "as long as you can breathe, you can get approval." This type of product emerged in the mid-to-late 2010s, when Hong Kong property prices soared. In order to stimulate sales of new properties, developers teamed up with financial institutions to launch "high-ratio mortgage plans", targeting buyers who did not have enough down payment but were eager to buy a house.
2. Analysis of the operating mechanism
The design of the program breaks through the limitations of traditional bank mortgages, and its specific operating model includes four major features:
– Ultra-high leverage: The loan amount can reach 85%-95% of the property price (traditional banks are limited to 50%-60%). For example, for a property worth HK$8 million, the down payment only requires HK$400,000 (5%) to enter the market
- Initial preferential interest rate: The first 2-3 years will have a "honeymoon interest rate" as low as 1.5%-2.5%, which is much lower than the H-rate level of about 2.75% at that time.
– Flexible audit standards: Exempt from stress testing, no income verification, only a simple statement instead
– Dual-track repayment design: Interest-only repayment required in the early stage, and principal repayment in the later stage
3. Deconstruction of risk structure
The potential risks of such products are characterized by a step-by-step outbreak:
Stage Risk
– Interest rate jump trap: After the preferential period, the interest rate may soar to P+2% (about 7%), and the monthly payment amount may increase by 200%
- Refinancing barriers: When transferring to a traditional bank, if the property price drops or the income review fails, there will be a “mortgage default crisis”
- Negative asset vortex: Hong Kong property prices will fall by 15% in 2022. Buyers who adopt the breathing plan generally have a leverage ratio of more than 80%, which makes them very likely to fall into negative assets.
Hidden clause risks
- Developer rebate binding: Some plans require buyers to choose designated decoration/lawyer services, which increases the actual cost
- Early repayment penalty: If you resell the loan within 3 years, you will need to pay a penalty of 3%-5% of the loan amount.
– Cross-default clause: Failure to pay management fees and other miscellaneous expenses may trigger early maturity of the loan
4. Market Impact Data
According to the HKMA 2023 report:
– The total outstanding loans involving Breathing Plan amounted to HK$62 billion
- About 23% borrowers have a monthly payment-to-income ratio of more than 70% (the international warning line is 40%)
– The default rate of related products in Q4 2022 rose to 1.8%, 4 times higher than traditional mortgages
– Among the buyers who adopt this type of plan, 62% are under 35 years old, reflecting the concentration of risks among young people
5. Regulatory evolution
Faced with systemic risks, regulators adopt a gradual tightening approach:
– 2019: HKMA increases risk weight of developer mortgages from 15% to 100%
– 2021: Introducing a cap on the “interest-only” scheme (up to 5 years)
- 2023: Mandatory disclosure of “interest rate stress test simulation results”
6. Real case warning
Case of a buyer of a new property in Kowloon in 2022:
– Purchased a unit worth 6.8 million, using 95% mortgage (down payment of 340,000)
– Monthly payment of HK$8,500 for the first three years (interest rate 2%)
– From the 4th year onwards, the interest rate rises to 7%, and the monthly payment soars to HK$25,300
- Forced to sell at a loss due to unaffordability, ultimately lost over a million in down payment + renovation costs
7. Comparison of alternatives
| Compare Projects | BreathePlan | Conventional Mortgage | Home Ownership Mortgage |
| Highest Ratio | 95% | 60% | 90% (Government Guarantee) |
| Stress Test | Exempt | Required | Required |
| Interest rate fluctuations | Sharp increase after 3 years | Follow market fluctuations | Fixed + floating |
| Early repayment restrictions | Penalty interest within 3-5 years | Usually no restrictions | Restrictions |
| Applicable to | Unstable income/Insufficient down payment | Stable income group | Eligible public housing waiting list |
8. Professional advice
– Leverage management: The total debt ratio should be controlled within the monthly income of 50%
– Interest rate stress test: simulate the ability to bear the interest rate after at least 3% increase
– Escape route planning: set aside liquid funds equivalent to 24 months of monthly payments
– Legal review: Pay special attention to the definition of “cross default” clauses
9. Market Trend Outlook
As the US interest rate hike cycle continues, the default risk of Breathing Plan may become more apparent. The Monetary Authority of Singapore has proposed to bring developer mortgages under the regulatory framework of the Banking Ordinance, and the approval standards will become stricter in the future. Potential buyers should carefully assess their long-term repayment capacity to avoid falling into a debt spiral.
Such innovative financial products are like "poison coated in sugar". Although they lower the threshold for home ownership in the short term, they may trigger personal financial crises and systemic risks in the long term. Consumers need to keep in mind that any leverage operation that ignores cash flow pressure will eventually pay a price when the economic cycle reverses.
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