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Hong Kong to scrap middleman role of law firms in mortgage transactions to protect homebuyers
- A new rule will allow a bank to pay the mortgage loan secured by a homebuyer directly into the bank account of the seller electronically
- The move aims to protect buyers who find themselves out of pocket when the law firm handling their transaction goes bust
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The role of lawyers as middlemen in residential mortgage transactions is to be abolished under new rules designed to protect Hong Kong homebuyers.
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The change will allow a bank to pay the mortgage loan secured by a homebuyer directly into the bank account of the seller electronically. The buyer would then use a cashier order to pay the remaining balance to the seller.
The new rule, put forward by the Hong Kong Monetary Authority on Wednesday, is aimed at protecting buyers who find themselves out of pocket when the law firm handling their transaction goes bust or gets into difficulties.
It is expected to take effect in the second half of next year after a consultation followed by a trial period. It will initially cover secondary market transactions before being extended to new flats.
It will change the current practice in which both bank and customer first pay the money to a law firm which then passes it on to the lawyer of the seller.
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“The Hong Kong Monetary Authority strongly supports this initiative to better protect bank customers in property transactions and to reduce the credit and operations risks of [banks] in their mortgage business,” said Arthur Yuen Kwok-hang, deputy chief executive of the HKMA, in a circular sent to all banks.
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