One week after the LPR quotation mechanism was announced, the new mortgage interest rate policy was finally implemented, setting a "lower limit" for the interest rate of newly issued personal housing loans.

On August 25, the People's Bank of China issued an announcement stating that starting from October 8, 2019, the interest rate for newly issued commercial personal housing loans will be based on the loan market quotation rate of the corresponding period in the last month as the pricing benchmark plus points. The value of points added should comply with national and local housing credit policy requirements, reflect the loan risk profile, and be fixed during the contract period.

After the pricing benchmark conversion, the interest rate of newly issued personal housing loans nationwide shall not be lower than the LPR of the corresponding period (based on the LPR of more than 5 years on August 20, which is 4.85%); the interest rate of the second personal housing loan shall not be lower than the LPR of the corresponding period plus 60 basis points (based on the LPR of more than 5 years on August 20, which is 5.45%), which is basically equivalent to the current actual lowest interest rate level of personal housing loans in my country.

"Clearly clarifying the lower limit of mortgage interest rates reflects the structural characteristics of monetary policy and can more effectively guide the flow of credit resources to the real sector." Fan Ruoying, a researcher at the Bank of China's Institute of International Finance, said that on the one hand, my country's private and small and micro enterprises still have serious financing difficulties and expensive financing problems, and it is still necessary to effectively reduce the loan interest rate level for real enterprises in the future; on the other hand, high housing prices have led to high economic leverage in my country and increased vulnerability of the financial system. It is necessary to prevent the decline in mortgage interest rates from causing funds to flow to the property market again.

Li Wanfu, an analyst at Rong360 Big Data Research Institute, believes that the central bank’s adjustment of housing loan interest rates based on the new LPR benchmark is very clear, and it will resolutely implement the positioning of “houses are for living in, not for speculation” and keep personal housing loan interest rates basically stable. From the short-term actual interest rate level, it will only have a slight impact on a very small number of the best customers, and will have little impact on the vast majority of home buyers.

How will mortgage interest rates go?

Judging from the newly released mortgage policy, the People's Bank of China emphasizes that the lower limit of interest rates must not be exceeded and the level of additional points is specified. This means that mortgage interest rates under the new LPR mechanism will not drop significantly.

“One thing is for sure, mortgage interest rates will not fall.” Liu Guoqiang, deputy governor of the People’s Bank of China, clearly emphasized last week that the new LPR formation mechanism will not cause mortgage interest rates to fall.

Liu Guoqiang said that we must resolutely implement the requirements of the Political Bureau meeting of the Central Committee on July 30, adhere to the positioning of "houses are for living in, not for speculation", implement long-term real estate management mechanisms, not use real estate as a short-term means to stimulate the economy, ensure the effective implementation of differentiated housing credit policies, and keep personal housing loan interest rates basically stable.

In fact, the LPR reform quotation mechanism is mainly to reduce the financing costs of the corporate sector, but it is of little significance to the residential sector. Since 2019, in order to curb the rising pressure on housing prices in some first- and second-tier cities, real estate control policies have continued to increase. Regulators have tightened real estate financing from banks, trusts, bonds and other aspects, and severely investigated and dealt with various illegal activities that divert funds into the real estate industry through misappropriation, diversion and other methods.

The China Business News reporter learned that previously, according to explicit or implicit regulations, the interest rate for first-home loans was generally no less than 10% of the benchmark interest rate, and the second-home loan interest rate was generally no less than 1.1 times the benchmark interest rate. The calculated values ​​were 4.41% and 5.39% respectively.

Comparing the interest rates before and after, it is found that the lowest interest rate for first home loans will increase from 4.41% to 4.85%, and the lowest interest rate for second home loans will increase from 5.39% to 5.45%. This means that if 10After the implementation of the new housing loan policy on March 8, if LPR remains at the current level, the home purchase costs for the best new mortgage loan borrowers will increase.

It is worth noting that against the backdrop of recent tightening of real estate controls, mortgage interest rates in some cities have even risen slightly.

Among the 35 cities monitored by Rong360 Big Data Research Institute, mortgage interest rates in Shanghai and Shenzhen have declined month-on-month, while Beijing and Guangzhou have remained the same as last month. Among second-tier cities, most cities have raised mortgage interest rates. Suzhou, Hangzhou, Ningbo, Dalian, and Changsha have raised their mortgage rates many times recently, and some banks have tight quotas and have even suspended accepting mortgage services.

Fan Ruoying believes that in the short term, this adjustment in mortgage interest rates will have little impact on the market. First, this adjustment in mortgage interest rates is for newly issued loans and does not affect existing loans; second, the adjusted mortgage interest rates are basically the same as those under the previous model. It is conducive to maintaining the continuity and stability of real estate financial policies and maintaining the smooth and healthy operation of the real estate market.

Taking into account city-specific policies

Real estate regulation not only adheres to the basic position of "housing is for living, not speculation", but also takes into account the flexibility of "city-specific policies". Since the beginning of this year, the differences in real estate regulation in different cities have become increasingly obvious, and housing loan interest rates have been lower than benchmark interest rates in some areas.

Take Shanghai as an example. Data monitored by Rong360 Big Data Research Institute shows that among the 30 bank branches monitored in Shanghai, 7 banks lowered their first-home loan interest rates in July, and 3 banks raised them. After the adjustment, the number of banks offering a 95% discount (i.e. 4.655%) on the benchmark interest rate has increased to 17, and some banks can even offer a 10% discount (4.41%).

The central bank announced that the provincial branches of the People's Bank of China should follow the principle of "policing according to the city" to guide the self-regulatory mechanism of market interest rate pricing at the provincial level. Based on the national unified credit policy and based on the changes in the local real estate market situation, the lower limit of the interest rate for the first and second commercial personal housing loans in the jurisdiction shall be determined.

This means that the actual impact of the New Real Estate Deal on different cities will be different. The central bank stated that banking financial institutions should clarify the interest rate pricing rules for commercial personal housing loans based on the lower limit of the point addition determined by the self-regulatory mechanism for market interest rate pricing at each provincial level, combined with factors such as the institution's operating conditions, customer risk status and credit conditions, and reasonably determine the specific point addition value for each loan.

Judging from July credit data, corporate mid- and long-term loans are improving. This means that under the guidance of supervision, banks are accelerating the adjustment of credit structure, reducing the credit resources occupied by the real estate industry, and the loan structure is continuously optimized.

Fan Ruoying said that real estate regulation will most likely be tightened in the future. Real estate financial policy requires comprehensive measures of "quantity" and "price": from the "price" aspect, it is necessary to prevent the downward trend in mortgage interest rates from pushing up housing prices and squeezing out credit resources in real fields such as manufacturing; from the "quantity" aspect, it is necessary to integrate data from non-bank financial institutions such as commercial banks and trusts to fully monitor the flow of real estate funds. Of course, in the context of the increasingly complex and severe international situation and the increasing downward pressure on the domestic economy, "stabilizing growth" is still the focus of work, and it is necessary to grasp the intensity and pace of real estate regulation.

Li Wanfu said that if the LPR interest rate is lowered in the future, according to the central bank's regulations, the lowest interest rates for first and second home loans will naturally be lowered accordingly. However, it should be noted that this only refers to the lowest interest rate. The actual interest rate will also be affected by regulatory policies and bank credit resources. It is expected that the execution interest rate will be difficult to see a significant and general decline in the short term.