Hong Kong Negative Equity Mortgages Drop 32% as Property Market Stabilizes

Hong Kong's underwater mortgage crisis is easing faster than expected. The Hong Kong Monetary Authority reported negative equity residential mortgage loans dropped to 21,304 cases at end-December 2025, a 32% decline from 31,449 cases just three months earlier.

The aggregate value of these troubled loans fell even more sharply—down to HK$105.4 billion from HK$156.8 billion in September, representing a 33% quarterly reduction. The unsecured portion, which represents actual bank exposure, contracted to HK$6.2 billion from HK$10.9 billion.

Despite the improvement, delinquency rates ticked up slightly. The three-month delinquency ratio rose to 0.31% from 0.24% in September—still remarkably low by global standards and well below the sector-wide 0.11% rate recorded in December 2024.

Policy Tailwinds Driving Recovery

The turnaround follows aggressive government intervention. Hong Kong removed all extra stamp duties in February 2024 to revive its struggling housing market, while the HKMA standardized maximum loan-to-value ratios at 70% for most residential properties in October 2024.

These measures appear to be working. Mortgage loans approved jumped 5.4% month-on-month to HK$25.5 billion in December 2024, and the average mortgage ratio hit 63.2% in February 2025—the highest level in over 15 years.

Falling interest rates are helping too. HSBC's Hong Kong Dollar Best Lending Rate dropped to 5.00% by October 2025, down from 5.625% in September 2024. About 91% of new mortgages are now priced off HIBOR rather than prime rates.

Caveats Worth Noting

The HKMA flagged an important limitation: these figures only capture first mortgages where banks know the loan exceeds property value. Second mortgages under co-financing schemes aren't included, meaning the true negative equity picture could be worse.

Still, the trend direction is clear. With HK$1.87 trillion in outstanding mortgage loans across the sector, the negative equity portion now represents just 5.6% of the total—down from over 8% in Q3.

For crypto traders watching traditional finance stress indicators, Hong Kong's property market stabilization removes one potential source of systemic risk in Asia's premier financial hub. The city's Web3 ambitions depend partly on broader economic health, and this data suggests the foundation is firming up.