China's Mortgage Rates Also Drop by 0.5%P... "Reviving Real Estate to Boost Economy"

Guangzhou First to Lift All Housing Purchase Restrictions

The People's Bank of China, the central bank, announced that it will lower the existing mortgage loan interest rates of commercial banks as previously announced to stimulate the economy.

On the 29th, the People's Bank of China reported that it guided the 'Market Interest Rate Determination Autonomous Mechanism,' which gathers commercial banks, to announce this interest rate adjustment initiative.

Apartment located in Shenzhen, China Photo by Reuters Yonhap News

Commercial banks must lower the existing mortgage loan interest rates that exceed 'Loan Prime Rate (LPR) - 0.3 percentage points' to the level of 'LPR - 0.3 percentage points' by October 31. As a result, the existing mortgage loan interest rates will drop by about 0.5 percentage points.

This interest rate cut applies not only to first-time homebuyers but also to those purchasing second or subsequent homes. Eighteen nationwide commercial banks are expected to announce their detailed interest rate adjustment plans by October 12 in principle.

Additionally, the minimum down payment ratio required for real estate loans will be lowered to 15% for second homes, the same as for first homes. This means loans can be obtained for up to 85% of the house price.

The People's Bank of China also announced measures such as raising the support ratio for the 300 billion yuan (approximately 56 trillion won) guaranteed housing (housing supplied affordably to low-income groups) re-lending fund, established in May, from the current 60% to 100%, and extending the deadline of real estate policy documents set to expire at the end of this year.

Earlier, on the 24th, Pan Gongsheng, Governor of the People's Bank of China, announced a stimulus package at a joint press conference of three financial authorities, stating that they would encourage lowering existing mortgage loan interest rates to the level of new mortgage loan interest rates. It was expected that the average reduction in mortgage loan interest rates would be around 0.5 percentage points. The lowering of the minimum down payment ratio was also mentioned at that time.

If the existing mortgage loan interest rates are lowered, about 50 million households will benefit, and household interest expenses are estimated to decrease by 150 billion yuan (approximately 28 trillion won) annually. Governor Pan stated at the press conference, "This will ultimately help promote consumption and investment and reduce early repayment of mortgage loans."

Recently, Chinese homeowners have been repaying mortgage loans early due to the burden of loan interest rates. This has led to concerns about deteriorating bank profitability and reduced consumer spending. In response, ahead of the major National Day holiday, the government announced a stimulus package to revive the real estate market.

Along with the authorities' efforts, major cities have also taken steps to stimulate the real estate market. According to Jeil Finance on the same day, among the four first-tier central cities in China, Shanghai, Guangzhou, and Shenzhen announced new real estate market policies. Guangzhou became the first first-tier city to lift all housing purchase restrictions. Shanghai and Shenzhen eased housing purchase criteria and minimum down payment ratios.