In a strategic move to support the housing market and stimulate economic growth, China's central bank, the People's Bank of China (PBOC), has announced a significant reduction in mortgage rates for existing home loans. Governor Pan Gongsheng revealed at a recent press conference that mortgage rates for existing loans will be cut by approximately 0.5 percentage points, aligning them closer to the rates of newly issued loans.
Alongside the rate cuts, the PBOC has standardized the minimum down payment ratio for both first and second homes at 15 percent. This adjustment aims to create a more stable and equitable housing market by preventing drastic early loan repayments and ensuring the smooth operation of commercial banks.
Since May, the PBOC has been actively optimizing financial policies related to real estate. The cancellation of nationwide minimum mortgage rates has allowed financial institutions greater flexibility in setting rates for personal home loans. By June, the weighted average mortgage rate for newly issued personal home loans had decreased to 3.45 percent, reflecting a year-on-year drop of 0.66 percentage points.
Data indicates that the widening interest rate gap between existing and new home loans has previously encouraged many homeowners to refinance or repay their mortgages early. This led to a reduction in home loan balances and posed challenges for banks' credit operations. The recent rate cuts are designed to mitigate these issues by making existing loans more manageable, thereby supporting both homeowners and financial institutions.
In August 2023, a similar initiative saw mortgage rates on over 23 trillion yuan ($3.28 trillion) in existing home loans reduced by an average of 0.73 percentage points. This move benefited over 50 million households, saving approximately 170 billion yuan in annual interest expenses and boosting consumer spending. Building on this success, the PBOC's current measures are expected to further enhance economic stability and growth.
Looking ahead, the PBOC plans to reduce the reserve requirement ratio (RRR) by 0.5 percentage points, injecting around 1 trillion yuan of long-term liquidity into the financial market. Additionally, the central bank will lower the interest rate of seven-day reverse repurchases by 0.2 percentage points to guide market rates for loans and deposits downward, ensuring the stability of commercial banks' net interest margins.
These measures reflect a balanced approach to fostering a healthy real estate market while maintaining financial stability. By facilitating the reduction of mortgage rates in a lawful and orderly manner, China aims to enhance household consumption, improve balance sheets, and support sustained economic growth.
Reference(s):
Analyst: Mortgage rates cut to support housing market in China
cgtn.com
