Financial Services Association, September 24 (Reporter Shi Sitong) Under “thousands of calls,” a new round of stock mortgage interest rate adjustments has finally ushered in hope.

On the morning of September 24, Pan Gongsheng, Governor of the People's Bank of China, made it clear at the press conference of the Information Office of the State Council that interest rates on existing mortgages will be reduced and the minimum down payment ratio for mortgages will be unified.

Specifically, the central bank guided commercial banks to reduce interest rates on existing mortgages to close to interest rates on newly issued mortgages. The average drop is expected to be about 0.5 percentage points; the minimum down payment ratio for two-home loans at the national level was lowered from 25% to 15%, and the minimum down payment ratio for first and second home mortgages was unified.

According to industry insiders, the implementation of this policy will effectively curb the wave of early loan repayments, mitigate its impact on consumer consumption, and help promote a steady recovery in the property market. However, as far as banks are concerned, a reduction in interest rates on stock mortgages may push banks' net interest spreads to a further decline, thereby increasing operating pressure.

“It is expected that the loan market quoted interest rate (LPR) and deposit interest rate will decline symmetrically. Furthermore, the effects of previous rounds of deposit interest rate cuts have also been cumulative. After continuing to comprehensively consider various policies, bank net interest spreads can remain basically stable.” Pan Gongsheng said. According to Dongfang Jincheng's estimates, if interest rates on deposits are lowered by an average of 6.4 basis points, it can make up for the impact of the 50 basis point reduction in stock mortgage interest rates on bank profits.

The second round of stock mortgage interest rate cuts is imperative to effectively curb the phenomenon of early loan repayment

“The central bank's current policy, which covers existing mortgages and the demand for new home purchases, is the strongest and most beneficial mortgage policy so far. It has played a positive role in reducing the cost of buying a home, continuously enhancing confidence in buying a home, and continuously reducing the risk of existing mortgages.” Yan Yuejin, deputy director of the Shanghai Yiju Real Estate Research Institute, said.

In his view, this policy integrates stock mortgages and incremental mortgages, and is also oriented to stimulate consumption and prevent risks. On the one hand, if interest rates on existing mortgages are lowered by 50 basis points, the monthly payment can be reduced by 300 yuan for 1 million loan principal and 30 years of equal principal and interest, which actually reduces the monthly payment burden for buyers or loan repayment households. At the same time, the adjustment of the down payment ratio for two-home loans has also further improved residents' ability to buy homes.

On the other hand, interest rates on stock mortgages themselves were high in the past, and the risk of monthly payment default increased, and incidents such as early repayment of loans also occurred. This adjustment will help stabilize existing mortgage loans and increase demand for mortgage loans for new home purchases. It also helps banks prevent risks, broaden their business, and truly promote the healthy development of the mortgage business.

“This policy will effectively curb the wave of early loan repayments and mitigate its impact on consumer consumption. At the same time, it is also sending a positive signal to stabilize the property market and help promote a steady recovery in the property market.” Wang Qing, chief macro analyst at Dongfang Jincheng, believes that there is indeed plenty of room for reduction in current mortgage interest rates; otherwise, it is impossible to contain the wave of early loan repayment and its impact on consumer consumption.

In fact, as early as September of last year, interest rates on the first home loan in stock had already undergone a round of large-scale adjustments. However, judging from actual results, interest rates on stock loans in this round were lowered quite drastically last year, which has not effectively improved the sluggish consumption trend since this year. The trend of early loan repayment is still quite obvious.

The central bank's monetary policy implementation report for the fourth quarter of 2023 shows that after the implementation of the first round of adjustments, interest rates on the first home loan of more than 23 trillion were cut. The adjusted weighted average interest rate was 4.27%, an average drop of 73 basis points. In contrast, due to the LPR reduction and the “517” new property market policy, interest rates on newly issued personal housing loans fell to 3.4% in July this year.

“Since this year, the interest rate spread between interest rates on existing mortgages and interest rates on newly issued mortgages has widened rapidly again. It is imperative to start a second round of stock mortgage interest rate cuts next.” Wang Qing anticipates that during this round of adjustments, not only will interest rates on the first existing home loan be lowered, but interest rates on the second existing home loan will also be lowered. Until the property market recovers steadily, interest rates on existing mortgages will continue to be lowered in line with interest rates on newly issued mortgages.

LPR and deposit interest rates will decline symmetrically, and bank net interest spreads can remain basically stable

It is worth noting that while the pressure on residents to repay their loans has been reduced, the industry generally believes that as interest spreads continue to narrow, the reduction in interest rates on stock mortgages will further increase the pressure on bank operations.

Zeng Gang, director of the Shanghai Finance and Development Laboratory, told the Financial Federation that cutting interest rates on existing mortgages is beneficial to reducing interest payment costs for loan holders and increasing disposable income. It is also a reflection of reducing financing costs, and can also play a positive role in boosting consumption and stabilizing residents' confidence.

However, for banks, after interest rates on stock mortgages are lowered, it will have an impact on the income level on the bank loan side, and net interest spreads will also decline further. As the share of existing mortgage loans varies from bank to bank, relatively speaking, banks with a high share of retail business will also be more affected.

“By the end of June, the amount of existing mortgages was 37.8 percent, and interest rates were lowered by 0.5 percentage points, which meant that the bank's interest income would be reduced by 189 billion yuan in 1 year, which is about 8.2% of the total profit of the banking industry in 2023.” Wang Qing said. However, in his view, this problem is not a fundamental obstacle; the supervisory authorities can mitigate it by guiding commercial banks to lower deposit interest rates in an orderly manner.

According to Wang Qing's analysis, as of the end of June, the balance of various commercial bank deposits was 296.5 trillion yuan. This means that if interest rates on deposits are lowered by an average of 6.4 basis points, it can make up for the impact of the 50 basis point reduction in stock mortgage interest rates on bank profits, reduce the burden on households with mortgages, and ease the pressure on bank profits.

In fact, Pan Gongsheng also further stated at the press conference that the impact of this interest rate adjustment on banks' net interest spreads is generally neutral. Lowering interest rates on stock mortgages will reduce banks' interest income, but it will also reduce early repayment of loans. Furthermore, it is expected that the loan market quoted interest rate (LPR) and deposit interest rate will decline symmetrically, and the effects of previous rounds of deposit interest rate cuts have also been cumulative. After continuing to comprehensively consider various policies, bank net interest spreads can remain basically stable.

Furthermore, Zeng Gang also pointed out that in the short term, banks will face greater downward pressure on interest spreads, but in the medium to long term, falling interest rates on stock loans will also help banks reduce long-term losses caused by early loan repayment.

Regarding the subsequent pressure on interest spreads, he suggested that banks need to further optimize their balance and liability structure and reduce debt-side costs. At the same time, the loan side should also strengthen investment in fields with potential development space, especially in fields related to the five major articles, etc., to raise the income level of interest-bearing assets by optimizing the credit structure, so as to meet the challenge of interest spreads.