Stress test paused — why DSR still matters

"The stress test is gone — so a 70% loan is easy?" Not quite. In February 2024 the HKMA suspended the mortgage rate stress test that assumed rates +200 basis points, but authorised institutions still apply a debt-servicing ratio (DSR) when assessing repayment ability. From October 2024, the loan-to-value cap for residential and non-residential property is unified at 70%, and the DSR cap is unified at 50%. Banks may no longer use a +2% rate overlay, but total monthly debt payments still cannot exceed half of income (educational summary; approval follows each bank's rules).

1. Stress test vs DSR

The two ideas are often mentioned together, but they are not the same:

• ▸Debt-servicing ratio (DSR): total monthly debt payments ÷ monthly income at the rate the bank uses for underwriting. HKMA public summary: 50% cap for all residential and non-residential property (from 2024-10-16).
• ▸Interest-rate stress test (suspended): assume the mortgage rate rises further (last version: +200 bp / 2 percentage points) and check whether the stressed DSR breaches the cap. Suspended on 28 February 2024.
• ▸Pre-suspension framework (illustrative): basic DSR about 50% (owner-occupied), stressed DSR about 60% after +200 bp — see HKMA 2023/2024 tables. The stress overlay is paused; the basic DSR still applies.

2. Recent public milestones

• ▸2022-09-23: HKMA cut the stress-test assumption from +300 bp to +200 bp.
• ▸2024-02-28: suspended the +200 bp stress test and adjusted some LTV measures.
• ▸2024-10-16: residential LTV cap unified at 70%; non-owner-occupied DSR raised from 40% to 50%; some extra haircuts removed. After revision: 70% LTV and 50% DSR caps.
• ▸HKMA consumer pages also note a typical maximum tenor of 30 years for property mortgages (15 years for car-park mortgages).

3. How DSR is calculated (education)

A useful education formula:

• ▸DSR = (mortgage payment + other monthly debt payments) ÷ monthly income × 100%
• ▸Other debts often include personal loans, car finance, credit-card minimums, student loans, and other mortgages (bank rules decide what counts)
• ▸Public cap summary: ≤ 50%
• ▸For H-rate plans, banks often underwrite at the plan's cap rate (market caps often near 3.5%, but plans differ) — so the rate you pay today may differ from the rate used for approval.

On the same loan, moving from 3.5% to 5.5% adds about HK$4,750 a month. DSR rises from about 36% to about 45% — still under 50% — but other debts or uneven income can push you to the line. Pure maths on "how much can I borrow" at HK$50,000 income and a 50% DSR cap (max payment HK$25,000, 30 years): about HK$5.57m at 3.5%, or about HK$4.40m at 5.5%. Personal risk control can use the higher rate on purpose; you need not wait for the official stress test to stay cautious.

4. Should you still stress yourself?

When announcing the October 2024 measures, the HKMA also reminded the public that buying a home is a long commitment and to borrow within means. Education suggestion: run at least three scenarios (HKMA's mortgage calculator helps):

• ▸Rate: application / cap rate, then +1–2 percentage points, and check leftover cash
• ▸Income: a pay cut or job loss — does the reserve (article 02) cover 3–6 months of payments plus living costs?
• ▸Debt: fold cards and personal loans into DSR; clearing dear short-term debt before applying is often more practical than stretching LTV

5. Pre-purchase checklist

• ▸Rough DSR with all debts; leave a buffer below 50%
• ▸Re-run payments at the cap rate and +1–2 pp
• ▸Keep the emergency reserve separate from the deposit (article 02)
• ▸Conservatively estimate bank approval before signing a provisional agreement
• ▸Compare H-rate caps with P-rate deals; check fees, lock-in and cash rebates
• ▸Use licensed banks / authorised institutions only; read later-period rates on high-LTV plans