The interest rate for new individual housing loans issued in July was 3.4%, with a difference of about 80 basis points between the interest rate for existing housing loans and new ones. There is a growing demand for adjusting the interest rate for existing housing loans for residents. Experts suggest that the interest rate for existing mortgages be adjusted in stages to mitigate the impact on banks, while controlling bank liability costs through measures such as lowering deposit rates to offset pressure on interest rate spreads.
According to financial news agency, there has been a renewed call for a decrease in the interest rate for existing housing loans.
Since last Friday, the adjustment of the interest rate for existing housing loans and the policy of conversion to mortgages have attracted widespread attention from all walks of life. Recently, there has been further discussion within the industry about the extent and pace of the interest rate reduction for existing housing loans.
However, under the pressure of narrowing interest rate spreads in the banking industry, how to alleviate the burden on households while easing the squeeze on bank profits has become a focus of attention. Data shows that in the first half of this year, the net interest margin of domestic commercial banks was 1.54%, far below the regulatory standard of 1.8%. At the end of June, the balance of personal housing loans in China was 37.79 trillion yuan.
In the view of industry experts, a significant reduction in the interest rate for existing housing loans will undoubtedly reduce bank interest income and further compress the net interest margin. However, it can also reduce the incentive for residents to repay their loans ahead of schedule, which is helpful in stabilizing bank loan balances. It is recommended to adjust the interest rate in stages to mitigate the impact on bank interest rate spreads, while controlling bank liability costs through measures such as lowering deposit rates to offset the related effects.
Experts say, "It is expected that there may be more policies to support real estate and stimulate domestic demand in the future, but the pressure on bank interest rate spreads must also be taken seriously. The market-oriented interest rate reform is expected to continue to be promoted, especially with the strengthening of the linkage between deposit and loan interest rates."
There is a difference of about 80 basis points between the interest rates for existing and new housing loans in July, and there is a call to adjust the interest rate for existing housing loans.
"The interest rate for my housing loan is much higher than the current interest rate for new housing loans. Recently, I plan to use the idle funds I have to repay the housing loan in advance." Mr. Zhang, a resident of Beijing, told the financial news agency. Although the housing loan interest rate has been lowered with the implementation of the Loan Prime Rate (LPR), it is still as high as 4.85%, which represents a significant interest rate spread compared to the currently issued housing loans, causing him a lot of distress.
In fact, with the continuous introduction of policies to reduce housing loan interest rates in various regions, there is no shortage of people like Mr. Zhang facing the above situation. Residents in various regions have also started a wave of early repayment of loans, hoping to save some housing loan costs through early repayment.
At the same time, the market's call for adjusting the interest rate of existing housing loans is also increasing. "If my housing loan interest rate can be aligned with the latest housing loan interest rate, then the need for early repayment may not be so great, and the burden of housing loans will also be reduced," Mr. Zhang said.
Caixin reporter noticed that since last Friday, discussions and speculations about reducing the interest rates of existing housing loans and changing to mortgage loans have become more and more intense. There have even been further analysis and assumptions about the specific extent and pace of the reduction.
According to Guosheng Financial's estimation, the interest rate of new personal housing loans in July was 3.4%, with a difference of about 80 basis points between the interest rate of existing housing loans and the interest rate of new loans. However, due to a total reduction of 35 basis points in the five-year LPR in February and July 2024, there will be a repricing this year/next year. After the repricing is completed, the actual difference between the interest rate of existing housing loans and the interest rate of new loans may be less than 45 basis points. Therefore, if the interest rate of existing housing loans is assumed to be further reduced, the actual reduction may be less than 45 basis points.
"If the interest rate of existing housing loans is reduced by 80 basis points and is in line with the interest rate of new loans, the monthly payment can be reduced by about 480 yuan for a mortgage loan with a principal of 1 million and a term of 30 years," said Yan Yuejin, deputy director of the E-House Research Institute. He believes that if this adjustment exceeds the magnitude of the previous round of interest rate reduction for existing housing loans, it can have a very good effect in reducing the burden and help stabilize the real estate market. At the same time, a significant adjustment in the interest rate of existing housing loans may also further alleviate the phenomenon of residents' early loan repayment.
In response, many borrowers of existing housing loans also expressed to Caixin reporters that they hope the interest rate of existing housing loans can be reduced to the level of new housing loans. "For me, if I still have 20 years of housing loan remaining, the overall savings after the adjustment will be about 0.11 million, which is quite significant for ordinary families," said Mr. Wang, a resident who purchased a house in Hangzhou.
Experts suggest adjusting the interest rates of existing mortgage loans in stages to offset the pressure of interest rate spreads and reduce debt costs.
"This is a bottom-up feedback loop." In the view of Zheng Jiawei, chief fixed income analyst at Zheshang Securities, the interest rate of new housing loans has significantly declined, while the interest rate spread between existing housing loans and new housing loans has gradually widened, causing residents to increasingly call for a reduction in the interest rate of existing housing loans to alleviate their economic burdens.
In this regard, Ming Ming, the chief economist of Citic Securities, bluntly stated that there is a possibility of China considering reducing the interest rate on existing housing loans. He pointed out that if the existing loan adjustments are implemented, the decrease in loan rates will reduce the interest income of banks, and the net interest margin of banks may be compressed. However, on the other hand, the reduction in loan costs will reduce the motivation of residents to repay the loan in advance, which will also help stabilize the bank's loan size.
"Subsequent interest rate cuts on existing housing loans are possible, but may not necessarily allow for refinancing, and it is more likely to reduce the interest rate on existing mortgages." In the view of Liang Fengjie, the chief analyst of the banking industry at Zheshang Securities, the current demand for reducing mortgage rates by residents is high, and the burden of interest on residents is still heavy, so it is possible to reduce the existing interest rates. Refinancing involves complex processes such as interbank cooperation, and its relaxation at the moment of weak demand for refinancing may lead to vicious competition among banks.
However, considering the significant pressure on commercial bank interest margins, the regulators have indicated the need to maintain a reasonable level of commercial bank profits and net interest margins. Liang Fengjie believes that if the interest rate on existing mortgages is lowered, it is expected that the deposit cost will be reduced in all likelihood to hedge the pressure on bank interest margins.
Regarding how to alleviate the burden on households while mitigating the squeeze on bank profits, Ming Ming believes that, on the one hand, interest rates can be gradually adjusted in stages to avoid causing excessive impact on banks due to a significant one-time interest rate reduction; on the other hand, control bank liability costs by lowering deposit rates, balancing bank income. At the same time, encourage banks to increase non-interest income by improving service quality and innovating financial products, in order to reduce reliance on interest income.
At the same time, Zheng Jiawei further pointed out that in the long term, the overall interest spread and profits of banks will still be compressed. However, in the short term, the two-step reduction of the interest rate on existing housing loans can have a certain buffering effect and reduce the impact on banks; at the same time, further reduction of deposit rates can also offset the related impact. As for stock price trends, the fundamental impact on banks is relatively neutral.
Looking ahead, Ming Ming believes that future adjustments in related areas may continue to develop in the direction of supporting the stability of the real estate market and stimulating domestic demand. It is expected that more policies may be introduced in the future to promote the healthy development of the real estate market, while ensuring the stability of the financial system. However, he also points out that the pressure on bank interest margins is a problem that must be taken seriously, and it is expected that interest rate marketization reform will continue to be promoted, especially with the strengthening of the linkage between deposit and loan rates.