China to cut existing mortgage rates by end of October, cities ease home buying barriers

BEIJING (Reuters) – China’s central bank said on Sunday it will tell banks to cut mortgage rates on existing home loans before Oct. 31 as part of sweeping policies to support the country’s beleaguered housing market as the economy slows.

Commercial banks should cut interest rates on existing mortgage loans in batches to not less than 30 basis points (bps) below the prime lending rate (LPR), the central bank’s benchmark mortgage rate, according to a press release published by the People’s Bank of China (PBOC).

It is expected to reduce existing mortgage rates by about 50 bps on average.

Across China, a number of policies, including cuts in down payment rates and mortgage rates, have been introduced this year to support China’s crisis-hit housing market.

But the stimulus measures have struggled to boost sales or increase liquidity in a market shunned by buyers that has remained a drag on broader economic growth.

Adding to such efforts, the city of Guangzhou announced on Sunday the lifting of all restrictions on home purchases, while Shanghai and Shenzhen said they would ease restrictions on home purchases by non-local buyers and reduce the minimum down payment rate for the first buyers at no less than 15. %.

Reuters reported on Friday that Shanghai and Shenzhen planned to lift remaining key restrictions to attract potential buyers.

Sunday’s announcements come after China on Tuesday unveiled its biggest stimulus since the COVID pandemic to pull the economy out of a deflationary funk.

“URGENT ADJUSTMENTS” TO BOOST SALES

Property figures released earlier this month showed new home prices fell at their fastest pace in more than nine years in August and property sales fell 18.0% in the first eight months of the year.

The central bank’s mortgage rate cut aims to ease the mortgage burden on homeowners, aiming to boost the housing market and weak domestic consumption demand.

“As market-oriented reforms on interest rates continue to deepen and the relationship between supply and demand in the housing market undergoes major changes, the current mechanism for setting the price of mortgage rates has revealed some weaknesses,” the PBOC said in his statement.

“While the public is showing strong responses (to the situation), the mechanism needs urgent adjustments and optimization,” the PBOC added.

China’s four largest state-owned banks, including Industrial and Commercial Bank of China Ltd and China Construction Bank Corp, said they would actively respond to the policy and promote the orderly adjustment of existing mortgage interest rates.

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Most local governments, except for some megacities including Beijing and Shanghai, have already abandoned mortgage interest.

Previous mortgage rate cuts have primarily benefited new home buyers, leaving existing homeowners with higher rate loans. This led to households rushing to prepay existing mortgages, further constraining household spending and consumption.

The outstanding value of individual mortgage loans was 37.79 billion yuan ($5.39 billion) at the end of June, down 2.1 percent from a year earlier, according to official data.

The PBOC also announced on Sunday that it will extend support measures for developers’ real estate development loans and trust loans until the end of 2026 to better meet developers’ funding demand.

(1 USD = 7.0110 Chinese Yuan Renminbi)

(Reporting by Ziyi Tang, Ryan Woo and Ellen Zhang; Editing by Kirsten Donovan and Helen Popper)