The loan market's quote interest rate (LPR) has fallen on schedule!

On October 21, the People's Bank of China (referred to as the "central bank") authorized the National Interbank Funding Center to announce the new loan market quote rate (LPR). Among them, the 1-year LPR is 3.10%, down from 3.35% last month; the 5-year and above LPR is 3.60%, down from 3.85% last month. The 1-year LPR and the 5-year and above LPR both decreased by 25 basis points compared to last month.

LPR is the main reference benchmark for loan pricing. Market experts believe that this decrease in LPR is in line with the current economic and financial situation, conveying policy signals of stable growth and development, conducive to stabilizing market expectations, driving down the financing costs of the real economy, further stimulating credit demand, and promoting business investment.

The quote for the 5-year and above LPR is closely related to housing costs, and its decrease will further save on housing loan interest expenses. According to journalist calculations, taking a mortgage loan with a principal of 1 million and a term of 30 years as an example, choosing the equal principal and interest method monthly, the 25 basis point decrease in this 5-year and above LPR can reduce the monthly repayment amount by approximately 142 yuan, and the total interest amount can be reduced by over 0.05 million yuan.

Although the loan repricing dates vary, most existing mortgage borrowers will benefit from the bulk adjustment of existing mortgage interest rates and the decrease in LPR. Simply put, after October 31st, the interest rates for most borrowers' existing mortgages will be adjusted to "LPR-30 basis points", and after the next loan repricing date, it will be further adjusted to "3.60-30 basis points", namely 3.30%. For second or more housing loans in Beijing, Shanghai, and Shenzhen, consideration is needed regarding the local policy floor.

Saving over 0.05 million in interest on a 1 million mortgage loan.

After three months, LPR once again experiences a decrease, further driving down the financing costs of the real economy, particularly easing the homebuyers' property ownership costs.

The 5-year and above LPR mainly serves as a reference for the pricing of long-term loans such as housing mortgage loans issued by banks. Therefore, this decrease in LPR will help reduce the property ownership costs for homebuyers. According to journalist calculations, taking a mortgage loan with a principal of 1 million and a term of 30 years as an example, choosing the equal principal and interest method monthly, the 25 basis point decrease in this 5-year and above LPR can reduce the monthly repayment amount by approximately 142 yuan, and the total interest amount can be reduced by over 0.05 million yuan.

After the batch adjustment of existing housing loan interest rates, existing housing loan borrowers will benefit from the decrease in LPR after the next loan repricing date, reducing interest burden and enhancing consumer spending power.

After the batch adjustment of existing housing loan interest rates after October 31, the interest rates for most borrowers will generally decrease to 'LPR-30 basis points'. After this LPR decrease, if the subsequent LPR quotes remain unchanged, the interest rates for most borrowers' existing housing loans will be adjusted to '3.60-30 basis points' after the next loan repricing date, i.e., 3.30%. In addition, second homes and above in Beijing, Shanghai, and Shenzhen need to consider local policy limits.

For example, Mr. Li has a property in a first-tier city, assuming his existing housing loan interest rate is 4.4% (LPR + 55 basis points), which will be adjusted to LPR-30 basis points after the batch adjustment. With this recent LPR decrease to 3.60% for terms over 5 years, after the next loan repricing date, the mortgage rate will drop to 3.30%, a decrease of 110 basis points compared to the previous rate. Taking a 1 million principal, 30-year term, equal principal and interest mortgage as an example, the monthly repayment was about 5,508 yuan before the adjustment, and about 4,546 yuan after the adjustment. Mr. Li can save about 461 yuan in monthly expenses, totaling savings of about 0.166 million yuan in interest.

LPR quotes are expected to remain stable within the year.

Regarding the recent LPR decrease, People's Bank of China Governor Pan Gongsheng hinted at the 2024 Financial Street Forum Annual Meeting. At that time, he mentioned that on the morning of October 18, commercial banks had already announced a reduction in deposit rates, and it is expected that the LPR to be announced on October 21 will also decrease by 0.2 to 0.25 percentage points.

Wang Qing, Chief Macro Analyst of Orient Securities, told Securities Times reporters that the recent LPR quote decline will lead to larger reductions in enterprise and individual loan rates, thereby stimulating demand for real economy financing, promoting consumption, expanding investment, boosting economic growth momentum, facilitating a moderate increase in commodity prices, and helping stabilize the real estate market, providing important support for successfully completing the annual economic and social development goals.

Since the beginning of the year, the LPR for terms over 5 years has already decreased by a total of 60 basis points. According to calculations by reporters, using a 1 million principal, 30-year mortgage loan as an example, if choosing equal principal and interest repayments each month, the monthly interest savings would be about 344 yuan, with total interest savings exceeding 0.12 million yuan.

Looking ahead, Wang Qing believes there is a small possibility of LPR quotes decreasing in November and December. On one hand, the rate reduction in September was significant, entering a period of observing policy effects in the fourth quarter, which means the pricing basis for LPR quotes will remain stable. On the other hand, current bank net interest margins are at historically low levels, limiting the incentive for banks to compress LPR quote markups. He also pointed out that focusing on stabilizing the real estate market and boosting economic growth momentum, next year's LPR may still have some downward space.

LPR quotes refer more to policy interest rates.

In fact, since the central bank's interest rate cut landed on September 27th, the market widely expected the October LPR quote to decrease. As the pricing basis for the current LPR quote, a reduction in policy interest rates will directly drive the adjustment of LPR quotes.

LPR is a quoted interest rate obtained by 20 quoting banks based on their loan interest rates to the best quality loan customers each month, quoting according to market principles, and obtaining the average quoted interest rate through the national interbank lending center's arithmetic average. Currently, the open market 7-day reverse repurchase operation rate has a certain reference role for LPR quotes.

In recent years, the strength of financial support for the real economy has been continuously increasing, with the decline in loan interest rates greater than the decrease in LPR, especially the greater decrease in loan interest rates for the best quality customers, resulting in a certain deviation between LPR quotes and the loan interest rates for the best quality customers. This decrease in LPR also reflects that some quoting banks have made corrections to the deviation between quotes and loan interest rates for the best quality customers by lowering quotes, continuously improving the quality of LPR quotes.

Since the beginning of this year, the central bank has continuously improved the market-oriented interest rate control mechanism, explicitly stating the open market 7-day reverse repurchase operation rate as the policy rate, while adjusting the duration of Medium-term Lending Facility (MLF) operations to after the monthly LPR release time, continuously diluting the policy rate color of MLF rates.

The People's Bank of China clearly stated in the 'Second Quarter 2024 China Monetary Policy Implementation Report' that the next step will continue to reform and improve LPR, focusing on enhancing the quality of LPR quotes, better playing the role of interest rate self-discipline mechanism, maintaining a rational and orderly competitive order, smoothing the interest rate transmission channels, and creating a good monetary and financial environment for the economic recovery and high-quality development.

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