Widening gap between new, old home loans boosts expectations
China's housing market expectations for a further decline in existing mortgage rates have turned stronger, real estate industry observers said on Wednesday.
That is because mortgage rates for individual homebuyers continue to decline. In addition, the interest rate gap between existing and new home mortgages continues to widen. This situation, therefore, calls for more measures to turn expectations into reality, they said.
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Experts noted that changes in the situation will depend on the willingness of both borrowers and lenders to embrace a new market dynamic. Another key factor is whether or not related policies can help turn expectations into reality, they said.
According to data compiled by China Real Estate Information Corp, a market observer, the average loan interest rate for new homes in 30 key cities is 3.21 percent, while that for second homes is 3.53 percent. Both the rates have declined 0.6-0.7 percentage point in comparison with the levels recorded at the beginning of the year. Some cities even reported a decline of up to 1 percentage point.
Zou Lan, head of the monetary policy department of the People's Bank of China, said during a news conference last week that the central bank's efforts to lower financing costs have paid off as the prime interest rate of one-year loans fell by 0.1 percentage point and that of five-year loans slid by 0.35 percentage point, bringing down the average loan interest rate.
"The widening gap between new home loans and those issued before finally led to a rational expectation for a corresponding rearrangement to close the gap," said Li Yujia, chief researcher at the Guangdong Planning Institute's residential policy research center.
"Amid constant cuts to deposit interest rates, maintaining home loan rates at high levels is not a cost-effective choice," Li said.
Li recalled that a notice issued by the central bank in August 2023 stated that first-time home loan borrowers can find relevant financial institutions and apply for replacement of their existing mortgages at more favorable rates.
"But this scenario can be achieved only by the agreement of both the borrower and the lender," Li said.
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Yan Yuejin, deputy head of the Shanghai-based E-House China R&D Institute, said expectations for adjustments to existing home loans are reasonable, as many homebuyers are facing a tight budget at the moment.
"If the rates do fall, it will not only reduce the homebuying costs for existing homeowners, but also boost consumption because of the lowered monthly home mortgage outgo," Yan said.
Chen Sheng, president of the China Real Estate Data Academy, said any decline in interest rates of existing home loans will alleviate the pressure on homeowners to some extent, but may also affect commercial banks' revenue.
"Therefore, while we would welcome any cut to mortgage costs for homeowners that could drive consumption, a balance should be struck between lenders and borrowers," Chen said.
