• 2024-07-13
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Relief & Confidence Boost: Bulk Adjustment of Existing Mortgage Rates Takes Effect

After much anticipation, the batch adjustment of existing housing loan interest rates by some banks has officially taken effect. Reporters have learned that major commercial banks, including the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications, and the Postal Savings Bank of China, have completed the batch adjustment of existing housing loan interest rates. Some smaller and medium-sized banks will complete the adjustment slightly later, but it is generally expected to be finished by October 31st. After the adjustment of the existing housing loan interest rates, they have gradually approached the interest rate levels of new homebuyers.

Industry insiders have stated that the nationwide attention to the reduction of existing housing loan interest rates has truly responded to public concerns, reducing the repayment burden on homebuyers, boosting their confidence, and simultaneously having a series of positive impacts on the macroeconomy.

Data shows that the majority of housing loan interest rates in China are formed by adding a certain percentage to the Loan Prime Rate (LPR) as the pricing benchmark. The adjustment on the 25th was to the amount added. According to the initiative released by the People's Bank of China's guidance on the market interest rate pricing self-discipline mechanism on September 29th, the existing housing loans adjusted by commercial banks include the first set and the second set and above, with the interest rate reduced to no less than LPR minus 30 basis points, and not lower than the lower limit of the newly issued commercial bank personal housing loan interest rates currently implemented in the city.

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For a long time, the interest rate on existing housing loans has been one of the focal points of social concern. Against the backdrop of slowing economic growth and residential income growth, the high burden of housing loans has become a significant source of pressure for many families. After the adjustment, it is expected that the average interest rate on existing housing loans will decrease by about 0.5 percentage points, saving a total of 150 billion yuan in interest expenditure, benefiting 50 million households and a population of 150 million.

On the morning of October 25th, Ms. Zhang, a citizen of Shenzhen, opened her mobile banking app to check the changes in her monthly payments. "It has dropped from 4.25% to 3.65%, and I can save nearly 700 yuan in interest each month." Ms. Zhang bought her first home in Shenzhen in 2020 and did not benefit from the previous round of adjustments to the interest rates on existing housing loans. Due to the large gap between the interest rates for new and existing housing loans, she has made several early repayments.

"I have been looking forward to the reduction of the interest rate on existing housing loans. Unfortunately, the two reductions in LPR in July and October will only be enjoyed next July. According to the current LPR, the interest rate can be reduced to 3.30%, and I should be able to save an additional three to four hundred yuan in interest each month," Ms. Zhang said.

Ms. Tian took out her loan relatively early, and at that time, the loan interest rate was 85% of the benchmark interest rate. This time, after consulting with bank staff, she decided to apply to convert her benchmark interest rate loan to a floating interest rate. After the batch adjustment on October 25th, her interest rate dropped from 4.165% to 3.55%, and her monthly repayment amount decreased by about 1,800 yuan. Bank staff also told Ms. Tian that by the loan repricing date in 2025, her housing loan interest rate would further decrease.

At present, the loan interest rate level of some homebuyers has not yet been reduced to the desired level. In response to this, a customer manager of a commercial bank explained that, unlike the loan repricing date, this interest rate adjustment only adjusts the addition and subtraction of LPR points, which means that the loan interest rate remains unchanged when the LPR is taken during the batch adjustment, and the LPR adjustment needs to wait until the loan repricing date. On the loan repricing date, after the loan is repriced, the loan interest rates that participated in this batch adjustment will be adjusted to the same level.

It is worth mentioning that the policy was officially implemented only one month after it was announced. On September 24th, People's Bank of China Governor Pan Gongsheng announced the reduction of existing housing loan interest rates at a press conference held by the State Council's Information Office, further reducing the interest expenditure of borrowers. On September 29th, the People's Bank of China issued the No. 11 announcement of [2024]. On the same day, the market interest rate pricing self-discipline mechanism issued a self-discipline initiative, guiding banks to reduce the interest rates on existing housing loans in batches. Commercial banks quickly issued announcements and actively responded to the initiative requirements. On October 12th, major commercial banks issued operational details, clarifying the adjustment time and method. Starting from October 25th, the adjustments have been successively implemented.

Yan Yuejin, Deputy Dean of the Research Institute of YiJu, said that the highly呼声 existing housing loan interest rate has finally been reduced, and this policy has responded to the concerns of the public. "The progress of the adjustment of the existing housing loan interest rate is faster than imagined. Compared with last year, this time it is all-round. No matter what type of house or which set of housing, everyone can enjoy the reduction of the discount, which is a real burden reduction."Yan Yuejin stated that adjusting the interest rates on existing mortgages can help promote increased consumption and investment, and enhance homebuyers' confidence in the real estate market. Additionally, it is beneficial in reducing the behavior of early mortgage repayments, compressing the space for illegal refinancing of existing mortgages, protecting the legitimate rights and interests of financial consumers, and plays a positive role in the prevention and resolution of risks in the banking financial system.

After the introduction of real estate policies such as lowering the interest rates on existing mortgages, there has been a noticeable increase in the number of viewings and transactions for new and second-hand houses in first-tier cities like Beijing recently. A journalist learned from a major bank that mortgage prepayments in October decreased by 20% compared to September, before the policy was introduced.

"The bottom of the commodity housing market may be approaching in a phased manner," said Li Yujia, the chief researcher at the Guangdong Housing Policy Research Center. Recently, a series of policy combinations supporting the real estate industry, such as lowering loan interest rates, reducing down payment ratios, and easing purchase restrictions, have boosted residents' expectations for buying homes. Coupled with local governments actively implementing policies tailored to their cities, the real estate market may experience a warm winter trend in the fourth quarter.

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