Charles West
Elite Member
- Joined
- Sep 14, 2004
- Professional Status
- Certified Residential Appraiser
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- California
Talk about a lack of freedom where the government tells you how to control your finances.
By
Rebecca Feng
Sept. 29, 2024,12:32 pm ET
Chinese home buyers with existing mortgages have been unable to immediately benefit from interest-rate cuts. Photo: Raul Ariano/Bloomberg News
HONG KONG—China said Sunday that it would allow home buyers to refinance their mortgages, the latest in a weeklong torrent of policy moves aimed at supporting the struggling economy.
The move marks a shift in how Chinese pay off their home loans and could allow policies aimed at addressing a prolonged property-sector slowdown to more effectively filter through to the market. Before this, many Chinese home buyers with existing mortgages have been unable to immediately benefit from interest-rate cuts.
Now, the country’s central bank, the People’s Bank of China, will allow borrowers to negotiate with lenders to refinance their home loans using the prevailing market rate for new mortgages when the deviation with the existing mortgage rate reaches a “certain magnitude,” without elaborating.
The new measure takes effect on Nov. 1, the PBOC said in its statement, which was issued on Sunday night—an unusual time for a central-bank release, but one that extends a near-daily drumbeat of easing measures stretching back to Tuesday last week, when the PBOC announced a bundle of new policies aimed at supporting the property market and bolstering the broader economy.
When interest rates fall in the U.S., home buyers on fixed-rate mortgages are able to take out new loans at the lower rates to pay down their existing mortgages. Until now, their Chinese counterparts haven’t been able to do that nor have they been able to negotiate with their banks to lower their borrowing rates.
Separately, under China’s current mortgage-lending regime, any moves by China’s central bank to cut benchmark interest rates would result in lower rates on home loans only in January the following year. That arrangement, too, will change on Nov. 1, with borrowers and banks able to decide when to adjust to the new benchmark rates, the central bank said Sunday.
Economists had blamed these restrictions for the ineffectiveness of Chinese policymakers’ attempts to boost the property market in recent years.
“Shortcomings in the current mortgage interest-rate pricing mechanism have become apparent, the public reaction has been quite strong and the need to adjust and optimize is urgent,” the central bank said in a statement Sunday accompanying the new measures.
China’s property sector is suffering through its fourth consecutive year of contraction—a major reason for the general malaise in the world’s second-largest economy. New-home sales by China’s largest 100 property developers last month fell by 27% from a year earlier to $36 billion, faster than July’s 20% year-over-year decline, according to data provider China Real Estate Information Corp.
The average borrowing rate on new residential mortgages in May, the most recent month for which the data was available, was 3.45%, according to a sample of 100 Chinese cities by Beike Research Institute.
Since the beginning of 2022, the Chinese central bank has cut its five-year loan prime rate that banks typically use to price mortgages by 0.8 percentage point. However, most Chinese home buyers have been locked into higher rates, at least until the beginning of the following year, unable to immediately take advantage of the lower rates being offered on new mortgages.
Starting in the summer of 2022, an increasing number of Chinese borrowers began repaying their mortgages early in an attempt to free themselves from their pricier loans, which weighed on banks’ profitability and consumer spending. In July last year, a senior Chinese official acknowledged the gap between rates on new mortgages and existing ones and hinted that the central bank would change that.
Banks were quick to respond to Sunday’s announcement. China Construction Bank and the Agricultural Bank of China, which have outstanding mortgage books worth around $900 billion and $723 billion respectively as of June, said Sunday evening that they are working to reduce interest rates on existing mortgages, and promised to adjust interest rates by Oct. 31.
Sunday’s announcement also formalized policies that were first telegraphed over the past week. Those include cutting the minimum down payment on second homes to 15%, from the current 25%; extending previous easing policies set to expire at the end of the year; and bolstering its re-lending program for state-owned firms to acquire unsold property inventories.
China to Allow Home Buyers to Refinance Mortgages in Latest Easing Move
The measure is the latest in a weeklong burst of moves aimed at stimulating China’s property market
By
Rebecca Feng
Sept. 29, 2024,12:32 pm ET
Chinese home buyers with existing mortgages have been unable to immediately benefit from interest-rate cuts. Photo: Raul Ariano/Bloomberg News
HONG KONG—China said Sunday that it would allow home buyers to refinance their mortgages, the latest in a weeklong torrent of policy moves aimed at supporting the struggling economy.
The move marks a shift in how Chinese pay off their home loans and could allow policies aimed at addressing a prolonged property-sector slowdown to more effectively filter through to the market. Before this, many Chinese home buyers with existing mortgages have been unable to immediately benefit from interest-rate cuts.
Now, the country’s central bank, the People’s Bank of China, will allow borrowers to negotiate with lenders to refinance their home loans using the prevailing market rate for new mortgages when the deviation with the existing mortgage rate reaches a “certain magnitude,” without elaborating.
The new measure takes effect on Nov. 1, the PBOC said in its statement, which was issued on Sunday night—an unusual time for a central-bank release, but one that extends a near-daily drumbeat of easing measures stretching back to Tuesday last week, when the PBOC announced a bundle of new policies aimed at supporting the property market and bolstering the broader economy.
When interest rates fall in the U.S., home buyers on fixed-rate mortgages are able to take out new loans at the lower rates to pay down their existing mortgages. Until now, their Chinese counterparts haven’t been able to do that nor have they been able to negotiate with their banks to lower their borrowing rates.
Separately, under China’s current mortgage-lending regime, any moves by China’s central bank to cut benchmark interest rates would result in lower rates on home loans only in January the following year. That arrangement, too, will change on Nov. 1, with borrowers and banks able to decide when to adjust to the new benchmark rates, the central bank said Sunday.
Economists had blamed these restrictions for the ineffectiveness of Chinese policymakers’ attempts to boost the property market in recent years.
“Shortcomings in the current mortgage interest-rate pricing mechanism have become apparent, the public reaction has been quite strong and the need to adjust and optimize is urgent,” the central bank said in a statement Sunday accompanying the new measures.
China’s property sector is suffering through its fourth consecutive year of contraction—a major reason for the general malaise in the world’s second-largest economy. New-home sales by China’s largest 100 property developers last month fell by 27% from a year earlier to $36 billion, faster than July’s 20% year-over-year decline, according to data provider China Real Estate Information Corp.
The average borrowing rate on new residential mortgages in May, the most recent month for which the data was available, was 3.45%, according to a sample of 100 Chinese cities by Beike Research Institute.
Since the beginning of 2022, the Chinese central bank has cut its five-year loan prime rate that banks typically use to price mortgages by 0.8 percentage point. However, most Chinese home buyers have been locked into higher rates, at least until the beginning of the following year, unable to immediately take advantage of the lower rates being offered on new mortgages.
Starting in the summer of 2022, an increasing number of Chinese borrowers began repaying their mortgages early in an attempt to free themselves from their pricier loans, which weighed on banks’ profitability and consumer spending. In July last year, a senior Chinese official acknowledged the gap between rates on new mortgages and existing ones and hinted that the central bank would change that.
Banks were quick to respond to Sunday’s announcement. China Construction Bank and the Agricultural Bank of China, which have outstanding mortgage books worth around $900 billion and $723 billion respectively as of June, said Sunday evening that they are working to reduce interest rates on existing mortgages, and promised to adjust interest rates by Oct. 31.
Sunday’s announcement also formalized policies that were first telegraphed over the past week. Those include cutting the minimum down payment on second homes to 15%, from the current 25%; extending previous easing policies set to expire at the end of the year; and bolstering its re-lending program for state-owned firms to acquire unsold property inventories.
