When a purchaser obtains a loan from a bank to buy a property, whether in the so-called "first-hand" or "second-hand" market, he will have to enter into a mortgage arrangement with the bank. When approving a purchaser's mortgage loan, the bank will consider the applicable loan-to-value ratio. For the purpose of determining the loan-to-value ratio, the bank will generally take the value of the property to be the lower of the actual purchase price and the value of the property as evaluated by a valuer appointed by the bank.

For residential mortgage lending, the Hong Kong Monetary Authority has issued guidelines that banks should not lend more than 70% of the assessed value of properties. It is a guideline intended to limit the lending bank's exposure to risk. Banks may lend up to 95% of the value of the property with the extra portion insured under the Mortgage Insurance Programme.

A mortgagor creates a further charge when he wants to obtain additional finance from his existing mortgagee on the security of property which has already been mortgaged.

Nowadays, the creation of a further charge is becoming less frequent because banks usually require mortgagors to execute an "all-monies" first mortgage when granting a loan. Under such "all-monies" mortgage, the mortgaged property will become security not only for the immediate advance but also for any future advance to the mortgagor. Therefore, when an additional advance to the mortgagor is approved, there is no need to create a further charge if there is in force an "all-monies" first mortgage securing all advances from time to time made to the mortgagor.

In addition to a first mortgage, a mortgagor may execute subsequent mortgage(s) over his property. However, every first mortgage document invariably contains a covenant by the mortgagor not to further encumber the property without the consent of the first mortgagee.

A second mortgage may be created for business needs where the mortgagor provides the same property as further security for an advance (usually by the same mortgagee as under the first mortgage) made to a company related to the mortgagor. In this situation, the second mortgage is called a "three-parties” second mortgage made by the mortgagee, the related company of the mortgagor as the borrower and the mortgagor.

Nowadays, many developers will also arrange, usually through their subsidiary or related finance companies, second mortgage loans for purchasers of their properties as part of their marketing strategy. In such co-financing schemes, the bank will usually lend up to 70% of the price of the property while the developer will arrange through their subsidary or related finance companies a second mortgage loan for the whole or part of the remaining 30% of the purchase price to the purchaser, with a second mortgage executed in favour of the finance company.

As the mortgagor incurs a higher indebtedness, the risk of default increases accordingly. The Hong Kong Monetary Authority has issued guidelines to banks and set out the criteria for banks' participation in any co-financing scheme. These include, among others, requiring the property to be assessed by independent valuers, not lending more than 70% of the lower of the purchase price or the valuation of the property, and including the total amount of principal and interest repayments of the second mortgage loan when calculating the debt-to-income ratio of the mortgagor.