Caixin reported on July 23rd that the latest first-home loan interest rate has landed in Shanghai after the PBoC lowered the loan market quoted interest rate (LPR) again. Based on the calculation of a principal loan of 1 million yuan with equal principal and interest repayment over 30 years, the total interest payment for the housing loan will be reduced by nearly 0.02 million yuan, and the monthly payment will be reduced by 55 yuan.

For the existing housing loan customers, it is expected that the monthly payment pressure of 1 million yuan housing loans will be reduced by 175 yuan next year, considering that LPR has cumulatively decreased by 35 basis points this year. As the newly issued housing loan interest rate continues to decline, the gap between the new and existing housing loan interest rate is gradually widening, which may also lead to the reduction of the existing housing loan rates.

Some banks in Shanghai are implementing the latest interest rates, and LPR still has some room for downward adjustments in the future.

"Yesterday's LPR adjustment means the latest home loan interest rate will take effect today. The first-home loan rate is now 3.4%. The second-home loan rate in free trade zones, Jiading, Qingpu, Songjiang and Fengxian is 3.6%, while it is 3.8% in downtown areas." A staff member at a branch of Shanghai Pudong Development Bank told Caixin that new loans starting today can enjoy the latest interest rates. Before the adjustment, the first-home loan rate in Shanghai was LPR-45BP, or 3.5%, and the second-home loan commercial rate for individuals was previously 3.9%, while five new towns such as Baoshan and Lingang and certain areas had a rate of 3.7%.

On July 22nd, the loan market quoted interest rate (LPR) for July was released. The People's Bank of China lowered the one-year and five-year LPR by 10 basis points each to 3.35% and 3.85%, respectively. The LPR for terms longer than five years is closely related to the personal housing loan rates of residents. After the reduction of LPR for more than five years, the housing loan rate will be adjusted accordingly. For new home buyers, this policy is good news as they can enjoy the reduced rate immediately based on the bank's policy adjustment.

Yan Yuejin, the research director of the E-houseChina Research and Development Institute, told Caixin that according to the calculation of a principal loan of 1 million yuan with equal principal and interest repayment over 30 years, the total interest payment for the housing loan will be reduced by nearly 0.02 million yuan, and the monthly payment will be reduced by 55 yuan. If the sustained interest rate cut is also implemented, the effect of reducing monthly payments will be very significant and helpful for lowering the housing loan cost in combination with other policies.

Lu Wenxi, a senior analyst with Shanghai-based Centaline Property, also believes that in the future, interest rates with a '2' in front may become mainstream. Compared with other countries' mortgage rates, such as Japan, there is still room for maneuver and there is space; "This is the lowest LPR reduction rate since the new LPR mechanism was implemented and the intensity is not small. It is mainly to stimulate market vitality. The cost of housing loans has been at a high level, and after the adjustment, it can alleviate everyone's burden in buying a house."

Wang Qing, an analyst with Orient Securities Macro Research, said that the LPR quoted interest rate cut in July will further drive down corporate loan rates and personal housing loan rates in the third quarter. This will effectively reduce the financing cost of the real economy and expand domestic demand. At the same time, according to the mechanism of market-oriented adjustment of deposit interest rates, bank deposit interest rates will be pegged to the one-year LPR quoted interest rate and 10-year national bond yield. This means that bank deposit interest rates will start a new round of all-round rate cuts in the future.

"We believe that after the July rate cut, the LPR quote will remain stable in the short term. Depending on the economic and price running conditions in the fourth quarter, there is still some room for the LPR quote to be downwardly adjusted." Wang Qing said.

Will the interest rates on existing housing loans be adjusted downward?

Although LPR has been adjusted twice this year, customers with existing housing loans are still required to wait for the 'resetting date' to implement the new interest rates. In addition, customers with existing housing loans are also concerned about the possibility of a possible reduction in the premium rate.

Yan Yuejin believes that if LPR has cumulatively decreased by 35 basis points this year, the monthly payment pressure of 1 million yuan housing loans will be reduced by 175 yuan next year. "Currently, the demand for rate reduction of existing housing loans in various regions is actually a demand for the reduction of basis points. If the interest rate of newly issued housing loans is relatively high, there will actually be a large contrast in the future and it may also bring forward the work of reducing the interest rates of existing housing loans in the second half of the year."

According to a research report by Tianfeng Securities, before the implementation of the policy '5.17', the average first-home loan interest rate of ke holdings in 100 cities was about 5.16%, and the average second-home loan interest rate was about 5.46%. In May 2024, the first and second-home loan interest rates of ke holdings in 100 cities were 3.45% and 3.90%, respectively, which were 171BP and 156BP lower than the historical averages.

Sinolink Securities believes that as the newly issued housing loan interest rate continues to decline, the gap between the new and existing housing loan interest rate is gradually widening, which may also lead to the reduction of the existing housing loan rates.

However, the current trend of early repayment has weakened. According to a research report by gtja, the latest (June) data on the early repayment rate by residents found that from the perspective of the total amount, the strength of residents' early repayment has slowed down and showed a seasonal decline, and the conditional prepayment rate (CPR) has returned to 23.4% (previous value of 25.9%). The proportion of early repayment for those whose debt burden is not heavy (remaining principal is within 20%) is still increasing, reaching a historical high; while the proportion of early repayment for those whose debt burden is relatively heavy (remaining principal is above 20%) has fallen to a low level.