This year, policymakers have taken forcefully decisive action to reduce borrowing costs, doing away with centrally government-guided mortgage rate floor for the acquisition of first and second
China is prepared to lower interest rates on more than $5 trillion in outstanding mortgages as soon as this month, accelerating efforts to lower borrowing costs for millions of families to boost consumption. This move comes as part of broader efforts to stimulate the economy amidst signs of weakening domestic demand and the looming threat of deflation.
Several banks are finishing up preparations for the upcoming changes in mortgage rates. According to one of the sources, certain homes would benefit from a quick rate reduction of up to 50 basis points. It is an essential step toward making housing more affordable and freeing up household income to urge consumer spending.
According to the people, the timing is still being worked out and may vary. The National Financial Regulatory Administration or the People’s Bank of China didn’t answer requests for comments.
As Bloomberg News revealed earlier this month, officials are considering a proposal that let borrowers and their current lenders renegotiate conditions before January, when banks usually reprice mortgages. Those aware of the situation suggested that the proposed reduction would probably be implemented in two stages totalling roughly 80 basis points.
The effort by policymakers to lessen the financial burden on families is intensifying in light of the weak domestic expenditure and growing risk of deflation. The average mortgage costs in China have dropped to a record low this year, but most families did not profit because banks would not reprice current loans until the following year. Some homeowners are frustrated by the disparity, which has contributed to an increase in early mortgage payments.
The move also coincides with an increasing number of Wall Street economists forecasting that China may fall short of its targeted 5% annual economic growth this year. A crisis of confidence in the second-largest economy in the world has exacerbated a growing selloff in Chinese stocks, placing increased pressure on officials to stop the downward trend.
Following some builders removed from a program that links the mainland bourses to the Hong Kong stock exchange, a Bloomberg gauge of Chinese developer shares fell 8.3% this week to its lowest level in four months.
According to data published by China Real Estate Information Corp in late August, the average interest rate on existing mortgages is approximately 4%, while newly-issued loans for a first house carry an interest rate of 3.2%, and loans for a second home carry an interest rate of 3.5%.
At the end of June, China had the fewest outstanding mortgages in almost three years, totalling 37.79 trillion yuan ($5.3 trillion), which Chinese lenders consider top assets. More rate cuts would put more strain on the banks, whose margin had already fallen to a record low of 1.54% at the end of June, far below the 1.8% barrier thought to be required to sustain respectable profitability. Homeowners would save more than 300 billion yuan in annual interest expenses assuming an 80 basis points cut, analysts at Shenwan Hongyuan Group estimated. For a household with 1 million yuan of 30-year mortgages, its monthly payment will drop by about 9%, they said.
This year, policymakers have taken forcefully decisive action to reduce borrowing costs, doing away with centrally government-guided mortgage rate floor for the acquisition of first and second. However, Beijing has struggled to control the real estate market slump, which has worsened the concerns about rising protectionism and an uncertain international environment, which could impact exports. Several attempts made to revive domestic demand have failed so far to stop the decline, putting the government’s growth target at risk and prompting experts to call for more aggressive support measures.has context menu
