Author｜Yan Yuejin (Research Director of E-House Research Institute Think Tank Center)

1. Policy background: dual-track interest rate reform

This time the central bank issued a policy specifically for housing loans, which is actually related to the reform of the dual-track interest rate system. In recent years, from the perspective of the development of the socialist market economy, it has been emphasized that the formation of interest rates also needs to be market-oriented. Generally speaking, Bank of China, China Construction Bank, etc. should be able to determine the interest rate of loans by themselves. However, in actual operations, banks do not dare to decide loan interest rates at will. If they are too high, they may lose customers; if they are too low, they may be considered to be stealing high-quality customers. As a result, they all default to the central bank's benchmark interest rate as the standard. There may be adjustments to this benchmark interest rate, but basically the loan interest rates of major banks are basically the same, or highly consistent.

2. The meaning of LPR

The market-oriented reform of interest rates has not actually stopped. LPR is mentioned in this policy, which translated means the basic interest rate of loans. The release of this interest rate has actually been formed in the past, that is, the 1-year loan interest rate. This interest rate is not determined by the central bank. It is determined by about 10 commercial banks based on actual conditions, but it is ultimately issued by the central bank. However, the one-year loan interest rate is to some extent a retail loan, or a short-term loan. The simplest thing is that a student wants to buy a mobile phone and pay it in 12 monthly installments. At this time, the loan interest rate will be determined based on the one-year LPR.

This central bank reform is actually to form a five-year loan basic interest rate LPR. This interest rate is not formed by the central bank, but is formed by various commercial banks based on specific loan conditions. In this way, this basic interest rate may fluctuate and be adjusted at any time. Of course, it is ultimately issued by the central bank. The formation of this interest rate is instructive for medium and long-term loans, and home loans generally have a minimum of 10 years and a maximum of 30 years, so this interest rate is applicable.

3. Will mortgage loans increase?

So the central bank’s policy this time does not essentially mean to raise or lower interest rates, but that when home buyers apply for mortgages in the future, the interest rate and interest on mortgage loans were originally determined based on the benchmark interest rate issued by the central bank, but now they are targeting the new basic interest rate of the 5-year LPR. This interest rate is formed internally by banks such as China Agricultural and Industrial Construction and other banks. It has a more commercial nature and can be adjusted at any time. The central bank's benchmark interest rate will not be adjusted easily, because an adjustment is easily regarded as an interest rate increase or interest rate cut. At least now, the People's Bank of China has not issued an interest rate cut policy amid global interest rate cuts.

So from this perspective, the calculation of future home loans may vary from person to person, amount to amount, and market to market. Regarding a question that home buyers are more concerned about, that is, whether the loan interest rate will be raised after buying a house, first of all, it should be noted that the five-year LPR interest rate is sometimes raised and sometimes lowered, so it also causes the final home loan interest rate to be raised or lowered. Secondly, objectively speaking, judging from the recent real estate loan policy, which is oriented towards tightening, it can be understood that the interest rate formed based on the "LPR base interest rate + base point" will be increased. That is, the interest rate was calculated based on the "central bank base interest rate + base point" in the past, but now it is "LPR base interest rate + base point". The policy also said that based on the principle of city-specific policies, relevant banks should proactively adjust this base point, and it cannot be lower than the central bank's regulations. However, if bank funds are relatively abundant in the future, and the LPR base interest rate may also be lowered, then the final calculated mortgage interest rate may also be lowered.