October 21, Caixin News (Reporter: Li Jie) The central bank cut the loan market benchmark interest rate LPR for the third time this year.

On October 22, the central bank lowered the one-year and five-year loan market quote rates (LPR) by 25 basis points each, with the 5-year LPR lowered to 3.6%, down from 3.85% last month; the 1-year LPR lowered to 3.1%, down from 3.35% last month.

"This is the third LPR reduction this year, and also the largest adjustment. Cumulatively, the 5-year LPR has been lowered by 60 basis points this year, setting a new historical record." Zhang Dawei, chief analyst at Zhongyuan Real Estate, said that with this latest interest rate cut by the central bank, except for a few first-tier cities, the national first-home mortgage rates will enter the "2" percentage range.

According to calculations by Zhongyuan Real Estate, based on a commercial loan amount of 1 million yuan, a 30-year loan, and equal principal and interest repayment, the 60 basis points rate cut this year will reduce the monthly payment by 344 yuan, with a total reduction of 0.1238 million yuan over 30 years.

"Decreasing interest rates will help stabilize expectations in the real estate market, with some cities, especially first and second-tier cities, gradually bottoming out, the market quickly stabilizing as a trend, and a warm winter market is expected to appear in a certain range of the market in the fourth quarter of 2024." Zhang Dawei said.

Zhang Dawei from Zhongyuan Real Estate: LPR breaks historical record low again

Zhang Dawei, chief analyst at Zhongyuan Real Estate, stated that the LPR was already at its lowest level in history prior to this interest rate cut. With the current rate cut, the national first-home mortgage rate has reached another historical low point by reducing another 25 basis points, once again setting a new historical record, which can be described as unprecedented, and market expectations are expected to undergo comprehensive changes.

The first interest rate cut this year occurred on February 20th, with the 5-year LPR reduced by 25 basis points, but the 1-year LPR remained unchanged; the second interest rate cut took place on July 22nd, with both the 1-year and 5-year LPR reduced by 10 basis points; this time the 5-year LPR was reduced by another 25 basis points, which means that the 5-year LPR has cumulatively decreased by 60 basis points within a year, setting a new historical record.

Before National Day, the real estate market received continuous bullish news, from the central bank's reserve requirements and interest rate cuts to the second home down payment ratio lowered to 15%, and the implementation of new property policies in Beijing, Shanghai, Guangzhou, and Shenzhen. Particularly after the 9.26 Politburo meeting proposed to "promote the stabilization of the real estate market," the policies were introduced forcefully and swiftly, injecting a strong boost into the real estate market and greatly boosting market confidence. These measures provided the market with more abundant liquidity, lowered the threshold for homebuyers, and gave more people the opportunity to realize their homeownership dreams early.

Nationally, the newly issued real estate loan rates have repeatedly hit new lows. After this interest rate cut, the real estate market is expected to have a relatively significant 'mini spring' in first-tier cities after a comprehensive adjustment of purchase restrictions.

This interest rate cut policy mainly affects first and second-tier cities, where mortgage rates in third and fourth-tier cities are already generally below 3.2%. After this interest rate cut, mortgage rates in third and fourth-tier cities are expected to be reduced to below 3%; the lowest first-time buyer mortgage rate in first-tier cities is currently 3.4%, which is expected to decrease to 3.15% after this interest rate cut. We expect that the market heat generated in first-tier cities after the 9.30 policy is likely to continue for some time.

For existing mortgage borrowers, the impact of this interest rate cut is expected to exceed 75 basis points. October will have a significant impact on existing mortgage borrowers, with most existing mortgages switching to LPR-30 basis points, meaning existing mortgage rates will drop to around 3.3% (LPR-30 basis points).

After transitioning to the LPR pricing model, most people's mortgage rates are generally adjusted once a year. The date of adjustment varies among different banks; some banks adjust on the contract signing day, but most banks begin adjustments from the first month of the new year.

This means existing mortgage borrowers may have to wait until the repricing date to enjoy the benefits of the interest rate cut, but for new homebuyers, this group will immediately benefit from this interest rate cut.

Yi Ju Research Institute's Yan Yuejin: Most cities' mortgage rates will drop from starting with "3" to starting with "2".

Yan Yuejin, deputy director of the Shanghai Eji Real Estate Research Institute, analyzed that the 5-year LPR reduction this time was 25 basis points, with a significant adjustment strength, reflecting further easing of monetary and crediting policies.

The rate cut this time has a significant impact on subsequent home purchases, continuing to reduce the costs and monthly payments for home buyers. Based on the current level of mortgage rates, for a 1 million yuan loan principal, calculated on an equal principal and interest basis for a 30-year period, this adjustment will reduce the monthly payment for home buyers by about 130 yuan, and the total interest can be reduced by approximately 0.048 million yuan.

One substantial impact of such operations on mortgage rates is that the mortgage rates in most cities across the country will drop from the 3% range to the 2% range, further indicating the adjustment of mortgage rates has entered the most lenient phase in history.

The latest adjustment also has a noticeable impact on existing housing loan rates. The continuous decrease in the benchmark rate allows a further reduction of 25 basis points in existing housing loan rates next year. In other words, this year's unified reduction in existing housing loan rates can average a 50 basis point decrease, and next year it can further decrease by 25 basis points, which will further reduce the monthly payment pressure on existing housing loans.

Liu Qilin from 58 Anjuke: LPR reduction will effectively reduce the burden of loan repayment.

Liu Qilin, director of research at Anjuke Institute, stated that the third LPR adjustment of the year is in line with expectations. Given the continuous low operation of the CPI, some industry insiders believe that there is still a possibility of future adjustments to the LPR.

For home buyers, the most direct benefit of the LPR reduction is the reduction of interest expenses, effectively alleviating their loan repayment burden.

In addition, the recent continuous reduction in the down payment ratio of mortgage policies may increase the monthly payment pressure on home buyers. However, by reducing interest rates to alleviate their loan repayment burden, home buyers can both afford to buy a house and ensure they have the ability to repay the loan, thereby aiding in the stable development of the real estate market.

Guangdong Urban Planning Institute's Li Yujia: interest rate cut will bring a warm winter market in the fourth quarter.

Li Yujia, Chief Researcher of the Housing Policy Research Center of Guangdong Urban Planning Institute, stated that the market had previously expected an interest rate cut.

Starting from the Politburo meeting on September 26, the regulatory authorities continuously strengthened proactive monetary policies, signaling a reduction in loan costs. At the meeting of the five ministries on October 18, the signal to reduce the Loan Prime Rate (LPR) was reiterated. The previous reduction in deposit rates, reduction in reserve requirements, and reduction in the central bank's open market operation rates have laid the foundation for this interest rate cut.

This interest rate cut of 25 basis points exceeds market expectations and is consistent with the rate cut magnitude after this year's Spring Festival. On one hand, there is a relatively high requirement for the stabilization of the commercial real estate market in the fourth quarter, while on the other hand, the pressure of the decline in the commercial real estate market in the third quarter has led to a sudden increase in the pressure to meet annual targets, necessitating a significant interest rate cut. In addition, the current housing demand in various regions is mainly driven by genuine demand and recently improved demand, and this group of people is quite sensitive to costs such as interest rates and taxes.

A substantial interest rate cut can lead to a rebound in market demand. For example, on February 20 this year, the decline in LPR drove a small spring in the first quarter real estate market. Therefore, after this interest rate cut, combined with the relaxation of home purchase restrictions, loan restrictions in first-tier cities, adjustments in tax policies, down payment percentage adjustments, etc., it will bring a warm winter market in the fourth quarter real estate market.

The previous interest rate cuts did not provide sufficient boost to loan enthusiasm mainly due to residents expecting further interest rate cuts. The rules for adjusting interest rates on existing home loans were clarified on September 30, allowing negotiations with banks at any time to quickly lower the interest rates on existing home loans to the minimum. This will greatly boost the enthusiasm for loan applications, playing a significant role in stabilizing the real estate market, with an important impact being the significant narrowing of the decline in sales of commercial real estate this year.