Dong Ximiao/Wen On the evening of September 29, the People's Bank of China issued Announcement [2024] No. 11 to adjust the interest rate pricing mechanism of commercial personal housing loans; The self-discipline mechanism for market interest rate pricing issued the "Initiative on Batch Adjustment of Stock Housing Loan Interest Rates", and issued an initiative on batch adjustment of stock commercial personal housing loans. On September 24, after Pan Gongsheng, Governor of the People's Bank of China, announced at a press conference that he would promote the reduction of the interest rate of the stock of housing loans, the batch adjustment of the interest rate of the stock of housing loans, which has attracted much attention, has entered a substantive stage. This measure will significantly reduce the interest expenses of borrowers on existing housing loan interest rates, but it may also affect the stability of bank interest margins, and measures should be taken to further boost household consumption and investment.
This is the second time since September 2023 that the interest rate on existing mortgages has been lowered in batches. In August 2023, the People's Bank of China (PBoC) and the State Administration of Financial Supervision (SAMR) issued the Notice on Matters Concerning the Reduction of Interest Rates on Existing First Home Loans, making arrangements for the work of reducing the interest rates on existing first home loans in batches, and the interest rates on existing first home loans will begin to be lowered from September 25, 2023. According to data released by the People's Bank of China, in 2023, more than 23 trillion yuan of interest rates on existing first-home loans will be lowered in batches, with an average reduction of about 73 basis points (0.73 percentage points), reducing borrowers' interest expenses by about 170 billion yuan per year. After the batch reduction in 2023, the average interest rate of the existing mortgage will drop to 4.27%.
Judging from the "Initiative" of the self-discipline mechanism and the "Announcement" of the People's Bank of China, the adjustment of the interest rate of the stock of housing loans has three obvious characteristics: First, the adjustment objects have been further expanded, including not only the stock of the first home loan, but also the other stock of two or more sets of housing loans. Secondly, not only the floating rate stock mortgage can be adjusted, but also the fixed rate stock mortgage can also be adjusted after being converted to LPR plus point form. Of course, the 2023 adjustment will also include fixed-rate stock first home loans. Thirdly, borrowers can re-agree with banks on the repricing cycle and the extent of the markup, which will make it possible to establish a normalized and more flexible adjustment mechanism. It should be said that from September 24, when Pan Gongsheng, governor of the People's Bank of China, announced the news of the adjustment of the interest rate of the stock of housing loans to the official landing on September 29, it took only 5 days.
From an operational point of view, after eligible mortgage borrowers complete the "one-click operation" through online banking, mobile banking and other channels, commercial banks will make batch adjustments. It is expected that for most mortgage borrowers, there is no need to go to a bank branch to apply, and the process will be very simple and fast. Among them, two time nodes have been set: in principle, before October 12, 18 national commercial banks such as China Construction Bank will announce the operation rules for batch adjustment of existing housing loan interest rates; In principle, before October 31, all commercial banks should complete the batch adjustment work. It is expected that starting in November, borrowers will be able to negotiate with banks on matters such as a new repricing cycle.
Taking a stock mortgage of 1 million yuan with 25 years of equal principal and interest repayment as an example, assuming that the mortgage interest rate is reduced from 4.4% to 3.55%, the borrower's interest expense can be saved by about 5,600 yuan per year. After this adjustment, the interest rate on existing mortgages is equivalent to the loan prime rate (LPR) minus 30 basis points (i.e., 0.3 percentage points). If we take into account that the PBOC's policy interest rate was lowered by 20 basis points (i.e. 0.2 percentage points), the LPR may follow by 20 basis points (i.e. 0.2 percentage points) on October 21, and after the loan repricing, the adjusted interest rate level of the existing housing loan will be significantly lower than 3.55%, to about 3.35%, and the mortgage interest rate of some borrowers will be reduced by more than 100 basis points (i.e. 1 percentage point), which will greatly save the interest expenses of mortgage borrowers. For some borrowers with mortgage interest rates above 5%, the maximum reduction is expected to reach 200 basis points (2 percentage points). Of course, in some areas of Beijing, Shanghai and Shenzhen, the interest rate of second home loans is still set at a lower limit, and the interest rate of existing housing loans should not be lower than the lower limit of the interest rate in the local area after the reduction is lowered.
According to the People's Bank of China's estimates, the reduction in the interest rate of existing housing loans will benefit about 50 million borrowers, reducing the interest expenses of borrowers by about 150 billion yuan per year. In general, the reduction of the interest rate of existing housing loans is conducive to borrowers to further reduce the interest expenses of housing loans, or will enhance residents' willingness and ability to consume. At the same time, if a more flexible adjustment mechanism is established, it may help stabilize the expectations of home buyers and boost the confidence of market players. In addition, the national minimum down payment ratio for second home loans has been lowered to 15% and the city government has adjusted the purchase and sale restriction policies, and the housing finance policy has been greatly and intensively adjusted, which has sent a clear and strong signal to the real estate market and will play a positive role in promoting the healthy and stable development of the real estate market. There is no doubt that the "policy bottom" of the real estate market has emerged.
After the completion of this batch adjustment, it is expected that the decline in the interest rate of the existing housing loan will reduce the interest income of banks by about 150 billion yuan per year. However, after the spread between new and old mortgages narrows, the phenomenon of prepayment may be significantly reduced, which is conducive to banks stabilizing the scale of housing loans. Considering that the People's Bank of China (PBoC) has lowered the reserve requirement ratio by 0.5 percentage points and the policy interest rate by 20 basis points (i.e. 0.2 percentage points), it is expected to drive down interest rates such as the medium-term lending facility (MLF) interest rate, which will also save banks' capital costs, help improve banks' sustainable operation capabilities, and provide some support for banks to better support the real economy. Taking into account these policy measures, after the adjustment of the interest rate of the existing housing loans, the net interest margin of banks is expected to remain basically stable, and the ability to develop steadily and serve the real economy will remain basically unchanged.
However, it remains to be seen to what extent the bulk reduction of the interest rate of the existing housing loan can promote household consumption and investment. In the short term, more measures should be taken to further boost household consumption and investment demand. For example, the implementation of the policy of "light taxation and thin taxation", greatly increase the threshold of individual income tax, and continue to reduce the tax burden of small and micro enterprises and individual industrial and commercial households. In the medium and long term, it is necessary to further improve the social security system with full coverage, better meet the urgent needs of residents in terms of pension, medical treatment, education, etc., reduce residents' worries and thus reduce their willingness to save precautionarily, and fundamentally boost their willingness and ability to consume and invest. In all this, it is necessary to persist in taking economic construction as the central task, deepen reform, open wider to the outside world, develop a socialist market economy, and promote common prosperity for all the people.