On August 31, the People’s Bank of China (PBOC) and the National Administration of Financial Regulation (NAFR) jointly issued the Notice on Adjusting and Optimizing Differentiated Housing Credit Policies and the Notice on Matters Concerning Lowering the Interest Rates on Existing First-Home Mortgage Loans. Relevant officials answered press questions on policy adjustments.
Q: What is the background of the adjustment and optimization of differentiated housing credit policies?
A: The meeting of the Political Bureau of the Central Committee held on July 24 made it clear that we need to adjust and optimize real estate policies as appropriate and make good use of city-specific policy toolkit in response to significant changes in the supply and demand relationship in China’s property market. Moreover, the executive meeting of the State Council on July 31 proposed that we should introduce policies and measures for different needs in each city to promote steady and healthy development of the property market, and accelerate the research and construction of a new development model for the real estate sector.
Following the decisions and arrangements made by the Central Committee of the Communist Party of China (CPC) and the State Council, the PBOC and the NAFR issued the notices to adjust and optimize the differentiated housing credit policies, support local authorities in using city-specific policy toolkit and guide a downward change in the actual down payment and mortgage rate for home-buyers to better meet the rigid demand for housing and the need for improving living conditions.
Q: What are the key points of the adjustment and optimization this time?
A: The first is to unify the policy on the floor of the down payment ratio for residential mortgages across the country. All cities, whether or not they have implemented “purchase restrictions”, will unify the floor of down payment ratio as not less than 20 percent for first-home buyers and as not less than 30 percent for second-home buyers.
The second is to adjust the floor of the second-home mortgage rate to not lower than the loan prime rate (LPR) in the corresponding term plus 20 basis points. The floor of the first-home mortgage rate remains not less than the LPR in the corresponding term minus 20 basis points.
Local authorities may, based on the city-specific principle, independently determine the floor of down payment ratios and interest rates for first- and second-home mortgages within their jurisdictions in accordance with the local property market conditions and regulatory needs.
Q: What is the reason for the rate cut for existing first-home mortgages?
A: As recent years have seen great changes in the supply and demand relationship in China’s property market, both borrowers and banks are calling for orderly adjustment and optimization of their assets and liabilities. Lower rates on existing mortgages help save interest expenses for borrowers, which is conducive to expanding consumption and investment. For banks, it helps dampen advanced repayment and thus lessens the impact on their interest income. Additionally, it also helps reduce the illicit use of business loans and consumer loans for existing mortgages, thus diminishing hidden risks. In response to the new situation, the PBOC and the NAFR support and encourage banks to negotiate with borrowers and adjust the interest rate on existing first-home mortgages based on market principles and the rule of law.
Q: Which types of existing first-home mortgages are eligible for interest rate reduction, and how can borrowers apply?
A: Eligible existing first-home mortgages refer to those that were issued by financial institutions before August 31, 2023, that have been contracted but not issued yet and whose borrowers meet the local criteria for first-home buyers.
For eligible existing mortgages, starting from September 25, 2023, borrowers can take the initiative to apply to the lending bank for interest rate reductions, and banks are also encouraged to provide more convenient services to borrowers by issuing announcements and making adjustments in batches. As for detailed ways of adjustment, banks may either change the additional basis points for mortgage rates agreed in the contracts or issue new loans to replace the previous ones. The specific range for interest rate adjustment shall be determined through negotiation between the borrower and the lender, but the adjusted interest rate shall not be lower than the floor of the first-home mortgage rate in the city when the original loan was issued. Newly issued loans can only be used for the repayment of the existing loans, and are still subject to residential mortgage management.
The PBOC and the NAFR will closely monitor market dynamics and guide banks to conduct voluntary negotiations with their clients based on market principles and the rule of law, so as to bring down the rates on existing mortgages in an orderly way and maintain a healthy market competition order.
