HONG KONG, Sept 13 (Askume Breakingviews) – Chinese policymakers plan to cut current mortgage rates by about 80 basis points as early as this month , Bloomberg reported on Thursday, citing people familiar with the matter. Significantly lowering home loan rates appears to be a necessary step to restore confidence in the housing market and the economy.
Last year, the home loan market fell for the first time in two decades, while lenders issued 6.4 trillion yuan ($900.72 billion) worth of new mortgages. That means property owners are speeding up repayments — a trend that cost households A$7 trillion (almost $1 trillion) last year, according to calculations by Breakingviews. The frenzy shows no signs of abating. Data from ANZ Research shows that in the first seven months of 2024, homeowners will pay 600 billion yuan in monthly mortgage payments, equivalent to 12% of disposable income.
According to the China Real Estate Information Group, interest rates on home purchase loans issued before 2023 are typically over 4%, while the interest rate on new mortgage loans is 3.2%. The lack of attractive places for the Chinese to park their cash is another reason for the trend to repay. Falling interest rates on bank deposits and the ongoing slowdown in the stock and property markets mean that for many people, paying off their mortgage is the best financial option.
Any direct boost to consumption from the extra savings accumulated by households would be limited. Lowering existing mortgage loans by 80 basis points could save 300 billion yuan in interest expense, just 0.6% of annual retail sales. Beijing could, however, reap some indirect benefits.
A rate cut will please some disgruntled homeowners who may have been nervous about the turn of the cycle. The government’s willingness to intervene could also motivate people who want to buy a home to take out a loan rather than wait for interest rates to fall. Ultimately, resetting mortgages will be more effective if the change is part of Beijing’s broader stimulus package.
Referral Information
China plans to lower interest rates on more than $5 trillion of outstanding mortgages as early as this month, Bloomberg reported on Sept. 12, citing people familiar with the matter. The proposed rate cuts are likely to come in two stages, totaling about 80 basis points, while some homeowners could benefit from an immediate cut of up to 50 basis points, the report said.
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