On September 5th, Caixin reported (Reporter Liang Kezhi) that with the traditional peak season of the National Day, the hot topic in the market is the existing house loan.

On September 5th, there were online reports that the Industrial and Commercial Bank of China, CM Bank, and other major banks were testing the "existing house loan interest rate adjustment" function on their apps. When Caixin reporters consulted the customer service of Industrial and Commercial Bank of China and CM Bank, they were told that the application portal for adjusting the interest rate of existing house loans was set up last year for the unified adjustment of the interest rate of existing house loans, and is not the latest release.

However, the attention to the existing house loan has not decreased.

On Monday of this week, regarding the market rumors last Friday about the opening up of the business of converting loans to residential mortgages, the President of CM Bank, Wang Liang, stated that they have not received opinions from the macro-management department, the People's Bank of China, or the China Banking and Insurance Regulatory Commission. They also have not consulted opinions from commercial banks and others.

However, Wang Liang believes that once such policies are introduced, they will have a negative impact on the interest rates of outstanding mortgages in the banking industry. It is believed that the macro-management department will fully demonstrate and study the issue before introducing similar policies.

On September 5th, a business professional from a certain major bank told Caixin that the conversion of loans to residential mortgages is currently only available in the Shenzhen area and is limited to the conversion of commercial loans to housing provident fund loans. The conversion involves the settlement of the original housing loan contract and reapplying for a housing loan with another bank. If there is no unified policy, it can only be regarded as a mortgage loan operation.

On September 4th, Xiao Jinchuan, Chief Analyst of Macro Research at Huaxi Securities, believed that the proposal made at the Political Bureau meeting in July this year to "reserve and timely introduce a set of incremental policy measures" suggests the possibility of a downward adjustment in the interest rate of existing house loans, similar to the interest rate cuts on existing house loans in August and September last year.

The stock housing loan has already been adjusted down one round, and the effect is significant.

Several banking business personnel mentioned above that the central bank instructed banks to uniformly lower the interest rate level for stock housing loans last year.

A report from China International Capital Corporation on September 2nd shows that in October 2023, the interest rate for stock housing loans was reduced by lowering the stock interest rate to no lower than the lower limit of the city interest rate at the time of issuance. According to statistics from the central bank, the interest rate for more than 22 trillion yuan of stock housing loans was reduced (accounting for about 60% of the stock mortgages), with an average decrease of about 70 basis points, involving over 50 million households and 150 million people, and reducing borrowers' interest expenses by 160-170 billion yuan per year.

On August 30th, a personal loan personnel from a major bank's Shenzhen branch told Financial Association that allowing conversion to mortgages may involve interbank competition, and even price wars, which may make bank operations more difficult. However, the interest rate for stock loans can still be lowered, which is beneficial to the interest spread and the pressure on providing housing.

Li Fengjie, an analyst at Zheshang Securities, believes that considering the high demand for reducing mortgage rates among residents, the interest burden on residents is still heavy. It is estimated that the current cost of stock mortgage rates for banks is about 4.14%, compared with the new issuance mortgage rate of 3.45% in June, there is still room for reduction. Taking all factors into consideration, there is a possibility of reducing interest rates for stock housing loans, but it may not necessarily allow conversion to mortgages, and it is more likely to lower the interest rate markup on stock mortgages.

Analyst Lin Yingqi from China International Capital Corporation calculated that based on a mortgage loan of 1 million yuan and equal principal and interest repayment, estimated that reducing the stock mortgage rate by 70 basis points could reduce the borrower's monthly payment by about 400 yuan, saving about 5% of the monthly payment and total repayment amount.

Xiao Jinchuan, an analyst from Huaxi Securities, believes that lowering the interest rate for stock housing loans can also alleviate the pressure caused by early repayment.

According to the People's Bank of China's "Regional Financial Operation Report", in August 2023, the amount of early repayment for personal housing loans nationwide reached 432.45 billion yuan. After the policy was introduced, the monthly average amount of early repayment for housing loans from September to December decreased to about 387 billion yuan, a decrease of 10.5% compared to August.

Xiao Jinchuan said that in areas with a large decrease in interest rates, such as Hubei, Henan, and Jiangxi, the amount of early repayment decreased by 42.1%, 27.5%, and 22.2% respectively, which is higher than the national average.

Reducing the 37.8 trillion existing housing loans will stimulate consumption and the economy.

From the perspective of stimulating consumption and the economy, Xiao Jinchuan found that in the fourth quarter of 2023, the urban residents' consumption tendency was 3.7 percentage points lower than the same period in 2019. However, in the areas with more significant interest rate cuts, Hubei and Jiangxi were 2.4 and 1.3 percentage points lower than the same period in 2019, respectively. This indicates that the resident consumption tendency in these two areas where the interest rate of existing housing loans has been reduced more is recovering relatively faster.

The Political Bureau meeting in July this year proposed to "reserves early and introduces a batch of incremental policy measures in a timely manner", following the interest rate cut on existing housing loans in August-September last year. There is also the possibility of reducing the interest rate on existing housing loans.

Xiao Jinchuan calculated that based on the scale of existing housing loans in the second quarter of 2024, which is 37.8 trillion yuan, the annual interest payments of the household sector for housing loans can be reduced by approximately 300 billion yuan at most.

China International Capital Corporation's Lin Yingqi assumed two policy scenarios, assuming that the mortgage loan interest rates are reduced to the level of new loans and the scope of refinancing only includes the first home mortgage, which can reduce the interest payments of borrowers by 240 billion yuan and 200 billion yuan, respectively.

On the other hand, the deposit interest rate may be simultaneously reduced. Liang Fengjie believes that considering the significant interest margin pressure on commercial banks, if the interest rates on existing housing loans are lowered, it is expected that the deposit costs will also be lowered to hedge against the interest margin pressure on banks. Based on calculations, the cost of deposits can be reduced by 5-17bp, thus fully offsetting the impact of the interest rate reduction on existing mortgages.