By tf-lawyer.com On October 25, several major commercial banks implemented a significant readjustment of outstanding mortgage rates for eligible borrowers. The adjustments were made centrally by the banks, meaning that most borrowers didn’t have to visit bank branches or take any action through mobile banking. The outcomes were promising; many mortgage rates saw a substantial drop, easing the financial burden on homebuyers and boosting both their purchasing power and consumer confidence.
One homebuyer, Mr. Zeng from Shanghai, took to social media to express his relief, stating, “I woke up to find that my monthly mortgage payment has decreased by nearly a thousand yuan.” Various banks, including the Industrial and Commercial Bank of China and Agricultural Bank of China, initiated these adjustments in response to a September 29 announcement by the People’s Bank of China, which aims to establish a self-regulatory pricing mechanism for market interest rates.
The financial alleviation is projected to save borrowers approximately 150 billion yuan annually, significantly enhancing their ability to spend.
For instance, Mr. Zeng discovered through the China Construction Bank’s mobile app that his mortgage rate for a second home dropped from 4.45% to 3.8%, resulting in savings of over 3,000 yuan per month. He remarked that the reduced interest payments provide him with greater flexibility for other expenses.
Most mortgage rates are based on the Loan Prime Rate (LPR), with adjustments made to the additional points added. The central bank has indicated that banks should finalize these adjustments for qualified outstanding mortgages by October 31, 2024. This includes first and second home loans, with significant decreases expected in rates that had previously been adjusted by more than 30 basis points.
According to Sui Yunfei, Deputy Director of the Housing Credit Division at the Housing Finance and Personal Credit Department of China Construction Bank, qualifying borrowers can now easily check their rate adjustments through designated online channels. The anticipated average reduction in outstanding mortgage rates is about 0.5 percentage points, benefiting approximately 50 million families.
As researcher Dong Ximiao noted, “This mortgage rate adjustment significantly alleviates the burden on homebuyers and enhances their disposable income, which can be redirected towards broader consumer needs, thereby boosting consumer confidence.” This means businesses can anticipate improved cash flow as individual entrepreneurs experience reduced borrowing costs.
However, not all borrowers will see immediate relief. Some, like Ms. Wu from Shenzhen, who recently secured a loan but still faced high monthly payments due to the original higher rate, are starting to see changes. After the adjustment, her interest rate was lowered to LPR-30 basis points, resulting in a monthly payment reduction of 1,200 yuan, allowing her family to plan for upcoming expenses more comfortably.
The potential for further rate decreases exists, as some borrowers’ loans are still up for repricing. Mr. Wang, a construction industry worker from Yangzhou, found that after contacting his bank about his delinquent payments, he too could benefit from the rate drop, saving around 2,000 yuan annually.
Experts noted variations in rates among borrowers, largely due to the differing repricing dates of their loans. The People’s Bank of China has facilitated this process by lifting the one-year minimum repricing period for mortgages, enabling lending rates to better reflect shifts in market conditions.
Furthermore, the recent adjustments are expected to stimulate housing demand, with reports indicating a significant uptick in mortgage inquiries and applications since the policy’s rollout. As consumer sentiment improves, the housing market shows signs of stabilization, particularly in cities where attitudes towards property investment are changing positively.
In conclusion, while the banks anticipate a drop in long-term interest income, they may offset those losses with reduced early repayment tendencies as new loans become more financially manageable for consumers. This sequential improvement in the housing market ultimately supports broader economic health and aims to sustain the lending institutions’ ability to function effectively in the real economy.
