The cap on loan-to-value ratios was lowered to 60% for residential mortgages on properties valued at $20 million or more in a Monetary Authority circular issued to banks in Hong Kong today.

For properties valued below $20 million the 70%-ratio will be maintained, but the maximum loan amount will be capped at $12 million.

The measures will take immediate effect but there will be a grace period for buyers who signed provisional sale-and-purchase agreements before October 24. Such purchasers will still be able to apply November 23 for mortgages up to the 70% ratio.

The circular also reminds banks they should be prudent in conducting property valuations and in calculating borrowers' debt servicing ratios, which refers to the ratio of their mortgage repayments to their income.

It said banks should consider the effect on borrowers' ability to make mortgage payments when interest rates, which are at historically low levels, return to normal levels.

Authority Chief Executive Norman Chan said: "These are prudential measures designed in the interest of maintaining banking stability, to enhance banks' risk management on mortgage lending to high-end residential properties. The lower loan-to-value ratio for high-end properties will be helpful to banks in the management of the credit risks in lending against such properties."

He reminded prospective buyers to consider the impact of interest rates returning to normal levels and to avoid overstretching themselves.