On October 21, Caixin reported (Reporter Gao Ping) that on October 21, the People's Bank of China authorized the National Interbank Funding Center to announce the loan market quote rate (LPR) for October 2024: 1-year LPR at 3.1%, and 5-year LPR and above at 3.6%. Both varieties decreased by 25 basis points compared to the previous month.

Industry insiders told Caixin reporters that the LPR is the main reference benchmark for loan interest rate pricing, and a decrease in LPR will further stabilize the financing costs of the real economy, stimulate credit demand, and promote business investment. At the same time, a decrease in the 5-year LPR and above is beneficial for reducing the interest burden of mortgage borrowers, promoting consumption.

Both the 1-year and 5-year LPR have been reduced by 25 basis points, further lowering the overall social financing costs.

Authoritative experts state that the LPR reduction indicates the effective operation of the central bank's interest rate policy transmission mechanism. Governor Pan Gongsheng emphasized at the Lujiazui Forum that there is a need to further improve the market-oriented interest rate control mechanism...

Furthermore, the LPR reduction is conducive to further lowering social financing costs. Authoritative experts point out that the 25 basis point decrease in both the 1-year and 5-year LPR varieties is significant, expected to drive down loan interest rates for enterprises and residents...

In the view of Wang Qing, Chief Macro Analyst at Orient Securities, the LPR quote for both term varieties in October has been lowered by 25 basis points. This marks the third reduction within the year, with the largest decrease since the LPR reform in 2019, exceeding market expectations.

Wang Qing also predicts that after the LPR reduction in October, it will drive a larger decrease in loan interest rates for enterprises and residents, stimulating the financing demand of the real economy, promoting consumption, expanding investment, boosting economic growth momentum, and gradually pushing up price levels. Additionally, it will help promote the stabilization of the real estate market...

Cumulative decline of 60 basis points in LPR for over 5 years within the year, with the interest rate reduction on existing housing loans this year possibly exceeding 1 percentage point.

LPR for over 5 years is the main reference benchmark for pricing medium and long-term corporate loans and individual housing loans. With the reduction of over 5-year LPR in October, the new housing loan rates will also decrease. Authoritative experts point out that the decrease in LPR for over 5 years will significantly reduce residential mortgage interest expenses. The reduction in LPR will greatly reduce the interest burden of mortgage borrowers and effectively promote consumption.

Authoritative experts stated that since the beginning of this year, the LPR for over 5 years has cumulatively decreased by 60 basis points, which is a significant bullish signal for both new and existing housing loans. For those planning to take out a mortgage for buying a house, the interest cost will be lower. For existing housing loan borrowers, the LPR decrease of 0.6 percentage points this year, combined with the approximately 0.5 percentage point average decrease in existing housing loan rates by various commercial banks in their unified batch adjustments on October 25th, the reduction in housing loan rates this year may exceed 1 percentage point.

It is worth noting that due to the pricing rules of housing loans, the new pricing cycle's interest rate level is determined based on the latest LPR on the repricing day. The reduction of existing housing loan rates generally needs to be implemented in steps.

For example, for a borrower of an existing housing loan in Beijing, with a repricing day on January 1st each year and the current mortgage rate at 4.75% (LPR + 55BP on January 1, 2024), the mortgage rate reduction can be done in two steps: the first step on October 25th, commercial banks batch adjust the mortgage rate mark-up to -30BP, resulting in an adjusted mortgage rate of 3.9% (LPR - 30BP). This adjustment amounts to 0.85 percentage points (4.75%-3.9%); the second step on January 1, 2025, the mortgage rate is recalculated based on the most recent LPR. If the LPR for over 5 years announced in December is 3.6%, the mortgage rate will be adjusted to 3.3% (LPR - 30BP), with an adjustment of 0.6 percentage points (3.9%-3.3%).

After the two-step adjustment, the mortgage rate for the property in 2024 has cumulatively decreased by 1.45 percentage points. Based on a 1 million loan principal, with a repayment method of equal principal and interest over 25 years, the total mortgage interest will decrease by over 0.24 million yuan, with a monthly installment reduction of over 800 yuan.

Looking ahead, Wang Qing predicts that the LPR quote within the year may remain stable. On one hand, the significant rate cut in September will lead to a policy observation period in the fourth quarter, reducing the possibility of further rate cuts. This implies that the pricing basis for LPR quotes will remain stable. On the other hand, the current net interest margin for banks is at a historically low level, which will limit the continuous compression of LPR quote mark-ups. Wang Qing determines that the focus in the fourth quarter will be on guiding significant reductions in enterprise and residential loan rates, especially for newly issued residential mortgage rates after the LPR quote reduction in October, aiming to stabilize the real estate market, boost economic growth momentum, drive a moderate increase in price levels, and may leave room for further LPR quote reductions in 2025.