China’s central bank cuts existing mortgage rates to prop up housing market, stimulate economic growth

real estate (Photo: Xinhua)

China's central bank on Tuesday unveiled a new package of monetary measures, led by significant reductions in existing mortgage rates, in a bid to rejuvenate the country's real estate market and fire up consumer spending.

Pan Gongsheng, the governor of the People's Bank of China (PBC), announced during a press conference on Tuesday that the central bank will guide lenders to cut existing mortgage rates on loaned homes by an average of 0.5 percentage points.

"This reduction will benefit 50 million households and 150 million people in the country, leading to an average annual decrease in family interest payments of about 150 billion yuan ($21 billion)," Pan said, emphasizing that it will significantly alleviate homebuyers' financial burdens, while stimulating domestic consumption and capital investment to support the stability and growth of the real estate market.

Market analysts said that the significant move signals that commercial banks in China will likely continue to lower mortgage costs for homebuyers in the coming months, as directed by the central bank.

"If the (mortgage) rate is slashed by 50 basis points, one-million yuan mortgage loans over 30 years under an equal principal and interest repayment plan could see the monthly payment drop by about 300 yuan," Yan Yuejin, deputy director of the E-house China R&D Institute in Shanghai, told the Global Times on Tuesday.

According to Pan, the new policy also sets a consistent minimum down payment ratio for both first and second-mortgaged homes, slashing the minimum down payment for second-home loans from the previous 25 percent to 15 percent nationwide.

On May 17, the Chinese government issued a notice to adjust the minimum down payment requirements for mortgages, with 15 percent for the first homes and 25 percent for the second homes.

This relaxed measure will help lower the barriers for home buyers. While the down payment for second homes was previously higher than that of first homes, the new reduction to the same 15 percent is poised to facilitate second home sales, analysts said.

"If a family purchases a second home for 2 million yuan, the down payment was previously 500,000 yuan. With the new policy, the down payment is around 300,000 yuan, saving them 200,000 yuan," Yan noted.

The PBC also announced increased support for the 300-billion-yuan special refinancing program for affordable housing, launched in May, raising the central bank's funding support ratio from 60 percent to 100 percent, strengthening incentives for commercial banks and home-buyers.

The central bank set up a 300-billion-yuan re-lending facility for affordable housing in May to help local state-owned enterprises purchase affordable housing. The new action is expected to accelerate the reduction of home inventory.

"We will roll out the official documents soon, but banks will require some time to get their systems ready," said Pan, pointing to PBC's aims to improve the mortgage pricing system, enabling commercial banks and borrowers to adjust terms based on market conditions.

The moves target both existing mortgages and new home loans, providing significant benefits to potential home-buyers, and ramping up their confidence, Yan said.

As the most impactful mortgage policy changes to date, the measures are expected to drive China's consumer spending and bolster economic growth, he added.

Aside from the mortgage rate cuts, China also announced other policies to cut reserve requirement ratios for commercial banks, and plans to introduce new tools to support the stock market, according to the central bank.