BEIJING (Reuters) – China’s central bank said on Sunday it will tell banks to cut mortgage rates on existing home loans by Oct. 31, as part of a sweeping policy to support the country’s troubled property market as the economy slows.
Commercial banks should gradually reduce interest rates on existing mortgages to no less than 30 basis points (bps) below the Loan Prime Rate (LPR), the central bank’s interest rate for mortgages, according to a statement from the People’s Bank of China (PBOC ).
It is expected that existing mortgage rates will be reduced by approximately 50 basis points on average.
A raft of policy measures, including cuts in down payment ratios and mortgage rates, have been introduced across China this year to support China’s crisis-hit real estate market.
But the stimulus measures have struggled to boost sales or increase liquidity in a market shunned by buyers and which has remained a major drag on broader economic growth.
Complementing such efforts, the city of Guangzhou on Sunday announced the lifting of all restrictions on home purchases, while Shanghai and Shenzhen said they would relax restrictions on home purchases by non-local buyers and reduce the minimum down payment ratio for first-time homebuyers would reduce to not less than 15.%.
Reuters reported on Friday that Shanghai and Shenzhen plan to lift key remaining restrictions to attract potential buyers.
Sunday’s announcements come after China on Tuesday unveiled its biggest stimulus since the COVID pandemic to lift the economy out of its deflationary funk.
‘URGENT ADJUSTMENTS’ TO BOOST SALES
Property-related figures released earlier this month showed new home prices fell at the fastest pace in more than nine years in August and property sales fell 18.0% in the first eight months of the year .
The central bank’s proposed cut in mortgage rates aims to ease mortgage costs for homeowners and thus stimulate the real estate market and weak domestic consumption demand.
“As market-oriented interest rate reforms continue to deepen and the supply-and-demand relationship in the real estate market undergoes major changes, the current mortgage interest rate pricing mechanism has exposed some shortcomings,” the PBOC said in its statement.
“With the public showing strong reactions to the situation, the mechanism urgently needs adjustments and optimization,” the PBOC added.
China’s four largest state-owned banks, including Industrial and Commercial Bank of China Ltd and China Construction Bank Corp, said they would actively respond to the policy and promote an orderly adjustment of existing mortgage rates.
Most local governments, with the exception of some megacities such as Beijing and Shanghai, have already scrapped mortgage interest rates.
Previous mortgage rate cuts mainly benefited new homebuyers, giving existing homeowners higher-interest loans. This has led to households paying off their existing mortgages early, putting further pressure on household spending and consumption.
The outstanding value of individual mortgages stood at 37.79 billion yuan ($5.39 billion) at the end of June, down 2.1% year on year, according to official data.
The PBOC also announced on Sunday that it would extend support measures for developers’ real estate development loans and trust loans until the end of 2026, to better meet developers’ financing demands.
($1 = 7.0110 Chinese Yuan Renminbi)
(Reporting by Ziyi Tang, Ryan Woo and Ellen Zhang; Editing by Kirsten Donovan and Helen Popper)
