The Central Bank has lowered the loan prime rate (LPR) for the second time this year.

On July 22nd, the Central Bank lowered the one-year and five-year loan market quoted interest rates (LPR) by 10 basis points each. The five-year LPR was lowered to 3.85%, down from 3.95%, and the one-year LPR was lowered to 3.35%, down from 3.45%.

Before this interest rate cut, LPR was already at its lowest level in history. This time, after the 5-year LPR was lowered again, the interest rate for a national first-home loan will also fall to a historic low.

Analysts believe that after the Central Bank introduced the "517" new policy, the housing loan interest rates in first-tier and strong second-tier cities have significantly decreased. This "rate cut" is expected to also bring short-term commercial loan rates below 3%, and the cost of purchasing a house for residents will continue to decline.

If we take a commercial loan of 1 million yuan, with a loan period of 30 years and equal principal and interest repayment method, the 10 basis point reduction in LPR will reduce the monthly payment by 57.3 yuan and the total cost of repayment by 0.021 million yuan over 30 years.

Zhao Dawei of Zhongyuan Real Estate: A 10-basis-point reduction in LPR will bring housing loan interest rates into the "2" era.

Zhao Dawei, chief analyst of Zhongyuan Real Estate, said that the Central Bank's rate cut after a four-month hiatus has had a relatively large impact on existing home loans.

Prior to this interest rate cut, existing home loan rates were always at a high level. The reduction in new home loan rates did not affect existing home loan rates, but this LPR reduction can lower existing home loan rates. Lowering the interest rate on existing home loans can reduce the motivation for borrowers to repay early, thereby reducing the interest income lost by banks due to early repayment. In addition, the 10 basis point reduction in the five-year LPR means that new home loan rates nationwide will be further reduced.

Overall, after the "517" policy, housing loan interest rates in China have undergone significant adjustments. According to statistics from the Zhongyuan Real Estate Research Institute, the average housing loan interest rate in China in June 2024 has been adjusted to about 3.5%, and the interest rate for first-time home buyers has dropped to 3.3%, a significant decrease compared to the 3.55% in May.

Public information shows that the lowest interest rate for first-time home buyers in Guangzhou has already dropped to about 3.1%, and the interest rate for some banks' first-time home buyers' loans has even dropped to 3%.

Therefore, after this rate cut, it is expected that more cities' first-home loan interest rates will be adjusted to the "2" digit.

In addition, this rate cut represents a continued easing of policies, and more favorable policies are on the way. At the recent press conference on the Third Plenum, it was mentioned that we will accelerate the construction of a new model for real estate development, eliminate the drawbacks of the previous model of high debt, high turnover, and high leverage, build "good houses" that meet the new expectations of the people, better meet the needs of rigid and improved housing, and establish financing, financial, land, sales and other basic systems adapted to it. It should be pointed out that China's new urbanization is still continuing, and there is still considerable room for high-quality real estate development.

The recent landing of a package of real estate policies shows the determination of the regulatory authorities to stabilize the real estate market. As first-tier and second-tier cities gradually implement various measures, the market is expected to enter a period of policy effect realization. However, it will take some time for demand, buyer income, and confidence in 2024 to recover.

Yan Yuejin, Director of the E-house China Research and Development Institution: The rate cut will help to further reduce housing loan costs.

Yan Yuejin, Director of the E-house China Research and Development Institution, analyzed that this interest rate cut is a "double cut", which means that the LPR for 1-year and 5-year periods has been reduced, fully indicating that the interest rate cut is comprehensive and has a positive effect on the use of short-term and medium- to long-term funds.

This 5-year LPR reduction will help further reduce housing loan costs. Looking at the trend of LPR, it showed a trend of "breaking 4" in the first quarter of this year, from 4.2% to 3.95%. With the current second rate cut, it will further guide the decline in housing loan costs and other costs.

Based on the main current housing loan interest rates in various regions, calculated according to the pricing formula of "LPR-75BP", the mainstream interest rate of the first home loan in the past was 3.2%, and now it will fall to 3.1%. If there is a continuing effect of rate cuts, the monthly payment relief effect will be very obvious, and it will help to continue to lower housing loan costs in combination with other policies.

Regarding the interest rate on existing home loans, after this adjustment of LPR, the interest rate has been lowered by a cumulative 35 basis points this year, so it is expected that the monthly payment pressure for existing home loans of 1 million yuan will be reduced by 175 yuan next year.

Li Yujia of Guangdong Provincial Institute of Urban Planning: Interest rate cuts are good news for those who urgently need to buy houses.

On July 22, the central bank stated that in order to further strengthen countercyclical adjustment and increase financial support for the real economy, the 7-day reverse repurchase operation rate of the open market will be adjusted from the previous 1.8% to 1.7% starting from today.

Li Yujia, chief researcher of the Guangdong Provincial Planning and Design Institute Housing Policy Research Center, said that currently the 7-day reverse repurchase operation rate has become a new policy interest rate, and has undertaken the role of market-oriented interest rate regulation mechanism. When the policy interest rate is lowered, it conveys a clear signal to the market, that is, a reduction in interest rates, which is the reason for the current LPR reduction.

In May, credit demand was relatively weak, and loans to the enterprise sector increased by 65.03 billion yuan year-on-year, of which long-term loans increased by 97 billion yuan, a year-on-year decrease of 62.33 billion yuan. Financing demand in the household sector continued to be weak. The household sector increased by 57.09 billion yuan, of which short-term loans increased by 24.71 billion yuan, a year-on-year decrease of 24.43 billion yuan, reflecting the weak characteristics of domestic demand.

It can be seen that after the May 17th real estate policy was introduced, the sentiment in the housing market has improved, but the degree of recovery is not enough.

Entering July, the real estate market entered the traditional off-season, and in the first week of July (7.01-7.08), the transaction volume fell sharply month-on-month at all levels. According to Kris statistics, the new house transaction index in first-tier cities fell by 90.11 points month-on-month to 82.66, the second-tier transaction index fell by 54.74 points month-on-month to 43.19, and key monitoring cities fell overall month-on-month. In the second week (7.09-7.15), the overall trend continued to decline, with the first-tier index increasing by 12.21 points month-on-month to 94.92, the second-tier transaction index increasing by 4.25 points month-on-month to 47.46, and the third and fourth-tier transaction index falling by 19.36 to 62.26 month-on-month.

Previously, banks had started to lower interest rates in order to compete for mortgage market share. For example, the minimum interest rate for first-home loans in Guangzhou has dropped to around 3.1%. It can be said that banks have lowered interest rates ahead of LPR, which will weaken the policy effect.

At the same time, there is an expectation in the market for further and sustained interest rate cuts. Therefore, except for those who have a rigid demand for housing, other demands for home purchases may choose to wait, especially when there is an expectation for a price correction. Therefore, it is expected that more interest rate cuts will benefit homebuyers with rigid demand.

Edited by Jeffrey