On October 25th, major Chinese banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Postal Savings Bank, and Bank of Communications implemented a significant adjustment to existing mortgage rates. This action followed a directive to reduce the adjustment range for applicable existing mortgage rates to no less than “a 30 basis point cut,” specifically targeting those rates that initially exceeded this threshold.
According to reports, the adjustments were carried out uniformly by the banks, allowing the vast majority of borrowers to benefit without needing to visit bank branches or actively modify settings online. As a result of this mass adjustment, existing mortgage rates are expected to decrease by an average of around 0.5 percentage points, which could save borrowers approximately 150 billion yuan in interest payments, benefiting around 50 million households and 150 million residents.
Experts believe that this policy adjustment will generate a series of positive effects on the macroeconomic landscape.
First, there’s an effective boost to market confidence. The consistent concern regarding high existing mortgage rates has long been a focal point for the public, especially as the economy faces downward pressure. The high burden of home loans has been a significant source of stress for many families. This policy change is seen as a proactive response to public worries. The capital markets reacted positively to this critical moment of rate adjustment.
Secondly, the policy provides substantial support for both consumer spending and investment. For individual households, the reduction in mortgage interest translates directly into increased disposable income. Given that the LPR for loans over five years has decreased cumulatively by 0.6 percentage points this year, associated mortgage rates may see a reduction of up to 1.45 percentage points after repricing. With reduced repayment pressure, borrowers will have more disposable income to meet diverse consumption needs.
This move is particularly beneficial for young families, alleviating financial pressure and boosting consumer confidence. For individual business owners, lower loan costs can lead to improved cash flow, allowing them to reinvest savings into expanding their operations.
Lastly, this amendment is likely to aid in stabilizing the real estate market. With reduced existing mortgage rates, buyers are less concerned about the widening gap between new and old mortgage rates, which helps to release pent-up housing demand and supports a stable and healthy real estate market.
Following the introduction of policies aimed at lowering existing mortgage rates, there has been a noticeable increase in viewings and transactions for new and second-hand homes, particularly in first-tier cities like Beijing. According to a major bank, prepayments on mortgages in October decreased by 20% compared to the month prior, before the implementation of the new policy.
Market observers suggest that this recent package of real estate support measures has improved consumer expectations for home purchases, combined with local governments actively enforcing tailored strategies, signaling a potential bottoming out of the real estate market.
