HK Case Study

Ian & Brenda are long term residents of Hong Kong who had always rented property, they had previously looked at purchasing but having visited a number of local banks were put off because the monthly mortgage cost associated with owning property was significantly higher than renting. To counter balance this they bought an investment property in the UK in 2004 for GBP 220,000. Ian & Brenda were referred to LBL by Terry who has benefited enormously from our philosophy and ongoing management system over the years and suggested Ian & Brenda could do the same. After an initial consultation it was found that they were now paying HK$ 44,000 per month in rent, their property in the UK was worth approx GBP 400,000 and they were receiving rent of GBP 900 from it. Their outstanding mortgage liability on the UK property was GBP 176,000 and cost them GBP 953 per month.

Their main objective was to buy in Hong Kong but they needed the total monthly cost to be less than HK$ 44,000. The property that they wanted to buy had an asking price of HK$ 8,000,000 so they would need a deposit of 30% or HK$ 2,400,000 to do so. They had savings of close to HK$ 1,500,000 in the bank but didn’t want to sink them all into the new purchase as they wanted to do some refurbishments after completion and didn’t want to leave themselves short. They choose to leave HK$ 500,000 in the bank as a comfort or ‘emergency fund,’ use HK$ 500,000 towards their deposit and spend the rest on refurbishment and closing costs.

The first problem was that they didn’t have enough of a deposit but it was explained to them that they could take advantage of an equity release from their investment property in the UK which had gone up significantly in value since they had bought it. If the UK property valued at GBP 400,000 then they could release equity of GBP 124,000 or HK$ 1,860,000 which when added to the HK$ 500,000 from their bank gave them HK$ 2,360,000. They agreed to re-mortgage the UK property to release the maximum equity available and to use HK$ 140,000 from their emergency fund to get the full deposit they required.

Ian & Brenda were keen to take full advantage of the International currency mortgage once the advantages had been fully explained. The re-mortgage of the UK property took place and the new loan was taken on an interest only basis in Swiss Francs at an interest rate of 3.4%. Their equivalent monthly payment was now GBP 850 which was less than their previous payment and they had GBP 124,000 at hand.

During the UK re-mortgage process they agreed to buy a place in Hong Kong for HK$ 8,000,000 and also used the international currency mortgage to do so. The reasons they favoured this type of mortgage over a more ‘traditional’ type mortgage from the local banks was that they were given the option of borrowing on an interest only basis with the added flexibility of being able to switch currency each quarter. The loan for HK$ 5,600,000 was approved on an interest only basis with currency options of HK$, JPY, CHF & GBP. After consultation and our recommendations they took the loan in CHF with an interest rate of 3.9% which meant that their equivalent monthly payment was HK$ 18,200 or HK$ 25,800 less than they were previously paying in rent.

Ian & Brenda took further advice from LBL and decided to save HK$ 20,000 per month over the selected mortgage terms of 20 years which with conservative investment returns of 6% per annum would easily pay off the loan in 20 years. If investment return were better in any years then the loan could be paid off sooner.

Their new position after completion of the Hong Kong property was that they now owned two properties which would hopefully go up in value over the years and give a good return on their investment whilst their monthly outgoings in the short term had reduced providing a better cash flow than previously by approx HK$ 6,500 per month.