Bank Boosts Property Market with Adjusted Mortgage Rates
The "stable stock" housing policy continues to gain momentum. Since the People's Bank of China issued an announcement regarding the improvement of the pricing mechanism for commercial personal housing loans, the banking industry has quickly responded with announcements about adjusting the interest rates on existing housing loans.
Journalists have noticed that recently, the rural credit systems in many provinces across the country have also密集ly issued announcements to follow up and adjust the interest rates on existing commercial personal housing loans. The rural credit systems in Hubei, Henan, Shandong, Jiangsu, and other places have announced adjustments to the interest rates on existing housing loans, with announcements stating that a batch adjustment of existing housing loan interest rates will be implemented before October 31, 2024. For example, in the announcement by rural commercial banks in Henan Province, it is pointed out: "In accordance with market-oriented and rule-of-law principles, convenient services will be provided through multiple channels, and the adjustment of existing housing loan interest rates will be carried out in a lawful and compliant manner. It is planned to release specific operational details on October 12, and to complete the batch adjustment of existing housing loan interest rates before October 31."
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In the future, as the interest rates on existing housing loans are adjusted one after another, the industry believes that the positive impact on banks is to reduce early repayments and increase the scale of housing loan disbursements. Wang Qing, the chief macro analyst at Orient Jincheng, pointed out: "The positive significance of this policy lies in shortening the adjustment cycle of existing housing loan interest rates. Next, the linkage between existing housing loan interest rates and newly issued housing loan interest rates will be further enhanced, eliminating the necessity of repaying housing loans early due to the interest rate difference between new and old housing loans, which can further alleviate the potential early repayment tide, equivalent to giving existing housing loan families a reassurance, which is conducive to promoting the real estate market to stop falling and stabilize as soon as possible, and avoid affecting residents' consumption."
Reducing the pressure of monthly payments
According to incomplete statistics by journalists, most provincial rural credit systems have issued announcements to adjust the interest rates on existing housing loans.
Announcements from Jiangxi Rural Credit and Hubei Rural Credit show that specific operational matters will be released on October 14, 2024, and batch adjustments will be completed before October 31, 2024; announcements from Henan Rural Credit and Jiangsu Rural Credit show that specific operational details are planned to be released on October 12, 2024, and batch adjustments will be completed before October 31, 2024.
Some rural commercial banks have responded to common questions about the adjustment of interest rates on existing commercial personal housing loans. On October 8, in the announcement by Nanhai Rural Commercial Bank, responses were given to questions about the adjustment of existing housing loan interest rates, and the scope of adjustment includes "all existing commercial personal housing loans that meet the requirements of the 'People's Bank of China Announcement [2024] No. 11' (hereinafter referred to as the 'Announcement') for the first set, second set, and more than two sets are adjusted. Existing housing loans that have already adjusted the加点幅度 in 2023 are also included."
Regarding how the specific interest rates will be adjusted, Nanhai Rural Commercial Bank pointed out: "The housing loan interest rate is determined by adding or subtracting points based on the LPR (Loan Prime Rate); this adjustment does not involve LPR, only adjusting the interest rate加点. According to the 'Initiative on Batch Adjustment of Existing Housing Loan Interest Rates', if the housing loan interest rate加点is higher than -30BP and higher than the current minimum limit of the newly issued commercial personal housing loan policy in the city where it is located (if any), it is within the scope of this batch adjustment of existing housing loan interest rates. According to the requirements of the 'Announcement', for existing commercial personal housing loan interest rates that are加点higher than -30BP on the basis of LPR, the加点is adjusted to not be lower than -30BP, and not lower than the current minimum limit of the newly issued commercial personal housing loan interest rate加点in the city where it is located (if any)."
With the official start of the new round of reduction in existing housing loan interest rates, homebuyers will feel real changes, and many homebuyers in various regions have already anticipated and calculated the changes in monthly housing loan payments after the reduction.
Mr. Li, a homebuyer in the Beijing area, told the journalist: "After the adjustment, the monthly housing loan repayment amount can be reduced by a few hundred yuan, and the total amount accumulated is very considerable, which will reduce the pressure of housing loan repayments in the long run." The journalist learned that in 2021, Mr. Li purchased a commercial housing unit within the Fifth Ring Road in Beijing, with a loan of 1.87 million yuan, a loan term of 300 months, and the interest rate at that time was 5.7%. With the previous adjustments of LPR and several interest rate changes, as of the latest adjustment of the housing loan interest rate, the loan interest rate was 4.75%, with a monthly repayment of 10,700 yuan, having repaid for 38 months, and the loan balance was 1.746 million yuan.The average reduction in the interest rate for existing mortgages can reach 0.5%. According to calculations, for homebuyers with a loan principal of 1 million yuan, they can save about 300 yuan per month, and the cumulative effect of burden reduction is positive. At the same time, it also significantly reduces the risk of default on existing mortgages from an industry perspective. Yan Yuejin, Deputy Dean of the Shanghai Yiju Real Estate Research Institute, stated this.
A responsible person from the People's Bank of China publicly stated at a press conference held by the State Council Information Office that the market interest rate pricing self-discipline mechanism will issue an initiative to guide commercial banks to carry out a batch adjustment of existing mortgage interest rates before October 31, 2024. The vast majority of borrowers can complete a "one-click operation" through online banking, mobile banking, and other channels. After the batch adjustment is completed, both the lending and borrowing parties can independently negotiate and dynamically adjust the interest rates of existing mortgages based on market-oriented principles.
Stabilizing the stock of mortgages
The adjustment of existing mortgage interest rates is not only directly related to the monthly mortgage payments of homebuyers but is also closely related to the operation and development of banks.
Publicly available calculation data from the Research Institute of Bank of China (601988.SH) shows that a 0.5% reduction in existing mortgage interest rates will lead to a 0.07% decrease in the bank's net interest margin, a 3% decrease in operating income, and a 6% decrease in net profit.
What specific impact will the adjustment of existing mortgage interest rates have on the operation of rural commercial banks? "Adjusting the interest rates of existing mortgages will actually have a certain impact on the interest margin, but considering that the proportion of individual housing mortgage loans in total loans is generally low, the impact is small. From a positive perspective, the adjustment of existing mortgage interest rates can effectively ease the trend of early repayments and has a positive significance for stabilizing the scale and income of housing loans." A person from a rural commercial bank told the reporter, "In rural financial institutions, the proportion of individual housing loans in the overall loan structure is generally within 10%." The mid-year report data of rural commercial banks listed in 2024 shows that the total amount of individual housing loans of the 10 listed rural commercial banks is close to 300 billion yuan. Among the 10 listed rural commercial banks, only 3 have a proportion of individual housing loans exceeding 10%, and all have experienced a year-on-year decrease. Six rural commercial banks have seen a year-on-year decrease of more than 10% in individual housing loans, among which Rui Feng Bank (601528.SH) has seen a year-on-year decrease of 20.39%. Compared with the overall banking industry, among the 41 A-share listed banks, 26 listed banks have a proportion of individual housing loans exceeding 10%, with the highest proportion being 27.27% and the lowest being 5.24%, with an average of 12.72%.
Taking Chongqing Rural Commercial Bank (601077.SH) as an example, the mid-year report data for 2024 shows that the bank's individual housing loan scale is 89.748 billion yuan, accounting for 12.7% of the loan structure, a year-on-year decrease of 5.38%. In 2023 and 2022, individual housing loans experienced year-on-year decreases of -5.65% and -3.98%, respectively.
Reducing the interest rates on existing mortgages to reduce the monthly payment pressure on existing homebuyers will help curb early repayments. In this regard, a person from Chongqing Rural Commercial Bank told the reporter: "From the asset side, it may reduce the number of early repayments and increase the allocation on the individual housing loan side, which is positively impactful for the bank from this perspective."
Regarding the impact of adjusting the interest rates on existing mortgages on the interest margin, which is of concern to the industry, the person from Chongqing Rural Commercial Bank pointed out that they have been adjusting the asset-liability structure, such as lowering deposit interest rates and controlling costs to improve efficiency.
Public information shows that in the first half of 2024, while maintaining a leading position in the market share of deposits, Chongqing Rural Commercial Bank continued to optimize the structure of deposits and strengthen the control of the scale of deposit products with relatively high costs, effectively reducing deposit costs. Data shows that in the first half of the year, the bank's deposit interest rate decreased by 12 basis points year-on-year to 1.79%, and the cost control of liabilities was significantly effective, alleviating some of the downward pressure on the interest margin. In the second half of the year, Chongqing Rural Commercial Bank still faces downward pressure on the net interest margin, but it is expected that the decline will narrow through improved asset-liability allocation and pricing capabilities.Additionally, reporters have learned that the rural credit systems in several provinces are formulating detailed rules and optimizing systems for the adjustment of existing housing loan interest rates, implementing batch adjustments for existing housing loans before October 31st.
Wang Qing believes that there are three main points of interest in the formal implementation of the existing housing loan interest rate reduction plan. Firstly, the speed of the implementation of this existing housing loan interest rate reduction is faster than market expectations. This is a rapid implementation of the deployment made at the Central Political Bureau meeting on September 26th, sending two signals: the first is to strengthen the stimulation of consumer spending by residents, and the second is to promote the stabilization and recovery of the real estate market. Secondly, the magnitude of this existing housing loan interest rate reduction is the same as what the central bank announced on September 24th, which is in line with market expectations and can save existing housing loan families 150 billion yuan in expenditures annually. Thirdly, this reduction in housing loan interest rates must be completed before October 31st, covering the interest rates for the first and second sets of housing loans. Last year's first round of housing loan interest rate reductions only covered the interest rates for the first set of housing loans, and this time the scope has been expanded. Starting from November 1st, customers can renegotiate the repricing cycle of existing housing loan interest rates with banks. Originally, there was only one adjustment per year. This time, adjustments can be made quarterly, semi-annually, or annually.