On October 12, 2024, 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, six state-owned commercial banks, announced that they will adjust the interest rates of existing housing loans in batches on October 25.
Subsequently, a number of banks followed up, and up to now, more than 20 banks have intensively issued detailed rules for the adjustment of interest rates on existing housing loans.
The main contents involved are:
2. The first set of existing housing loans in Beijing, Shanghai, Shenzhen and other regions will be uniformly adjusted to LPR minus 30 basis points; If the interest rate of two or more sets of mortgages is higher than the lower limit of the corresponding policy, it will be adjusted to the lower limit of the corresponding local policy.
3. Customers with two or more existing housing loans in Beijing, Shanghai, Shenzhen and other regions who currently meet the criteria for the first home can apply to the bank to adjust the loan to the first home loan.
4. Loans that can be included in batch adjustment must be priced at a floating interest rate, and loans with fixed interest rates and benchmark interest rates must be converted to a floating interest rate before adjustment.
5. For the floating rate loans that can be included in this batch adjustment, the bank will make a batch adjustment on October 25 without the borrower's application.
The main purpose of the major banks' batch adjustment of the interest rate of the existing housing loan is to fundamentally solve the problems of the expansion of the interest rate spread between the old and new housing loans in the downward cycle of interest rates.
It is understood that with the expected improvement of the real estate market, the phenomenon of prepayment of loans by residents has decreased recently.
We believe that the decline in the interest rate of existing mortgages can indeed reduce the repayment pressure of home buyers to a certain extent, but there is no direct stimulus effect on the real estate market itself, and it is more of a medium and long-term impact.
Recently, a number of banks, including the six major state-owned commercial banks, have intensively issued detailed rules for the adjustment of interest rates on existing housing loans.
After the adjustment, except for Beijing, Shanghai, Shenzhen and other regions, the stock of housing loans in all other regions will be adjusted to LPR minus 30 basis points.
The adjustment of the commercial personal housing stock loan is different from that in September 2023, when the adjustment was mainly the interest rate of the existing first home loan that met the requirements, while the adjustment of the stock mortgage interest rate includes the first set, the second set and above, which is wider and stronger. Since the original mortgage markup for the second home is generally higher than that for the first home, the interest rate reduction that the second home borrower can enjoy this time will be even greater.
Beijing, Shanghai, and Shenzhen have not yet abolished the lower limit of the mortgage interest rate, so the interest rate of the second home loan should not be lower than the local markup, such as the fifth ring road in Beijing, the core area of Shanghai and the second home loan interest rate in Shenzhen can only be reduced to LPR-5BP at most. However, the interest rate of the first set of existing housing loans in Beijing, Shanghai and Shenzhen has been uniformly adjusted to LPR minus 30 basis points.
On September 29, 2024, the People's Bank of China (PBOC) issued the Initiative on Batch Adjustment of Stock Mortgage Interest Rates (hereinafter referred to as the "Initiative") People's Bank of China the self-discipline mechanism for guiding market interest rate pricing, requiring major commercial banks to issue announcements on the day of the Initiative in principle, and to issue operational rules no later than October 12, 2024, so as to respond to customer concerns in a timely manner.
The intensive release of the detailed rules for the adjustment of interest rates on existing housing loans by major banks is a response to the "Initiative".
According to the loan market quotation rate (LPR) on September 20, 2024 announced by the National Interbank Lending Center authorized by the People's Bank of China, the LPR for more than 5 years is 3.85%, that is, after the batch adjustment on October 25, the interest rate on existing housing loans in all regions except Beijing, Shanghai, Shenzhen and other regions is 3.55%.
It should be noted that if the interest rate of the borrower's existing mortgage is lower than the LPR-30BP, it will not be adjusted.
It should be noted that judging from the announcements issued by Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank of China and other banks, the adjustment is a batch adjustment of the interest rate of the existing housing loans, and the loan repricing date is not clearly adjusted.
This means that the new loan interest rate after batch adjustment will be implemented from the same day, but not everyone will reduce the interest rate of existing mortgages to 3.55% on the day of adjustment.
In this regard, the Announcement [2024] No. 11 of the People's Bank of China clearly states that from November 1, 2024, if the contract stipulates a floating interest rate, commercial personal housing loan borrowers can negotiate with banking financial institutions to agree on a repricing cycle. On the interest rate repricing date, the pricing benchmark is adjusted to the most recent month's loan prime rate. The interest rate repricing cycle and adjustment method should be specified in the loan contract.
Originally, the repricing cycle of mortgage interest rates was set to be one year, and most pricing dates were January 1 of each year, which means that for existing mortgage customers, this year's LPR rate decline will not be translated into a substantial mortgage rate reduction until January next year.
This time, the hard restriction of the one-year pricing cycle has been abolished and shortened to quarterly and semi-annual, so that existing mortgage customers can enjoy the preferential interest rate brought by the LPR reduction more quickly in the interest rate reduction cycle.
At the same time, the announcement also stated that from November 1, 2024, when the interest rate deviation between the floating rate commercial personal housing loan and the new commercial personal housing loan issued nationwide reaches a certain range, the borrower can negotiate with the banking financial institutions to replace the existing loans with the new floating rate commercial personal housing loans issued by the banking financial institutions.
This means that commercial banks and borrowers negotiate independently and adjust the increase in a timely manner, and there is no need to wait for the accumulation of interest rate spreads between new and old mortgages before commercial banks make batch adjustments, which can gradually and orderly alleviate the contradictions.
The central bank's promotion of improving the interest rate pricing mechanism for commercial personal housing loans is fundamentally to solve the problems of the widening of the interest rate gap between new and old housing loans in the downward cycle of interest rates. For home buyers, it is possible to consult and negotiate specific matters after the relevant date.
From the second half of 2022, "prepayment" has begun to become the focus of attention of many home buyers. Entering 2023, under the background of the expected decline in mortgage interest rates, the delay in updating the interest rates of existing mortgages, and the continuous decline in wealth management interest rates, home buyers' willingness to repay loans in advance has strengthened, and the tide of prepayment is coming.
At that time, some hot cities had to queue for at least one month for "prepayment".
On September 20, 2023, the State Council Information Office held a regular briefing on the economic situation and policies of the State Council, at which it carried out a specific discussion on the issue of reducing the interest rate of the first housing loan in stock, and made it clear that it will take the initiative to adjust the interest rate in batches on September 25, 2023.
The relevant person in charge of the People's Bank of China said that in August 2023, in order to fully respond to the demands of the masses and in line with the principle of urgency first, the People's Bank of China, together with the State Administration of Financial Regulation, guided commercial banks to adjust the interest rates of existing housing loans in batches by means of negotiating and changing the contract interest rate, and achieved good results.
According to the media on October 14, 2024**, after the announcement of a number of financial support policies such as reducing the interest rate of existing housing loans and unifying the down payment ratio of housing loans, the number of visitors and subscriptions to real estate in most first-tier cities has increased marginally, and the number of residents repaying their mortgages in advance has decreased. According to the Shenzhen branch of a large state-owned bank, according to its research, since September 25, the average daily application for personal mortgage prepayment of the bank has dropped by 60% compared with the average daily level in the first half of September.
On October 14, the central bank released a report on financial statistics for the first three quarters of 2024, showing that RMB loans increased by 16.02 trillion yuan in the first three quarters. Household loans increased by 1.94 trillion yuan, of which medium and long-term loans increased by 1.54 trillion yuan. This data also reflects the increase in residents' demand for large-scale consumption such as buying houses and cars.
We believe that the decline in the interest rate of existing housing loans and the improvement of the pricing mechanism of personal housing loan interest rates can reduce the repayment pressure of residents, release purchasing power and enhance market activity to a certain extent, but it will have more of a medium and long-term impact on the real estate market.
In addition to the interest rate reduction of existing housing loans, the central bank announced at the press conference of the State Council Information Office on September 24 that policies such as reducing the second set of down payments at the national level, increasing the proportion of refinancing support by 100%, renewing the "16 financial articles" and operating property loan support have also been implemented one by one.
We believe that with the gradual implementation of favorable policies, the real estate industry can be expected to stop falling and stabilize in the future.