The relevant person in charge of the People's Bank of China answered reporters' questions on personal housing loan interest rates.

1. What is the background of the announcement?

Personal housing loan interest rates are an integral part of the loan interest rate system. In the process of reforming and improving the loan market quoted rate (LPR) formation mechanism, the personal housing loan pricing benchmark also needs to be converted from the loan benchmark interest rate to LPR to better play the role of the market. At the same time, personal housing loan interest rates are also an important part of the long-term management mechanism of the real estate market and regional differentiated housing credit policies. In order to implement the positioning of "houses are for living in, not for speculation" and the long-term management mechanism of the real estate market, ensure the smooth and orderly transformation of pricing benchmarks, maintain the basic stability of personal housing loan interest rates, and protect the legitimate rights and interests of both borrowers and lenders, the People's Bank of China issued an announcement to clarify matters related to the adjustment of personal housing loan interest rates.

2. How will personal housing loan interest rates be priced after the reform?

After the reform, the interest rate for newly issued commercial personal housing loans will be based on the LPR of the corresponding period in the last month as the pricing benchmark plus points. Among them, LPR is calculated from the loan market quoted interest rate quotes. The specific point value for each loan is determined by the lending bank in accordance with national and local housing credit policy requirements, comprehensive loan risk status, and negotiated with the borrower when issuing the loan. Once the bonus point value is determined, it remains fixed throughout the contract period.

3. When determining the pricing benchmark, how to understand the corresponding period?

Currently, LPR has two maturity varieties: 1-year term and more than 5-year term. There are directly corresponding benchmarks for the interest rates of personal housing loans with a term of one year and more than five years. The interest rate benchmarks for personal housing loans with a term of less than one year and between one and five years can be chosen by the lending bank independently between the two types of terms. After the reference benchmark is determined, the point value can be adjusted to reflect the term interest rate factor.

4. What is interest rate repricing?

Interest rate repricing means that the lending bank determines a new loan interest rate based on changes in the pricing basis according to the calculation method agreed in the contract. The announcement clarified that the personal housing loan interest rate repricing cycle can be negotiated and agreed upon by both parties, with the minimum being one year and the maximum being the contract period. Borrowers and lending banks can choose based on their own interest rate risk bearing and management capabilities. Each time the interest rate is repriced, the pricing basis is adjusted to the LPR of the corresponding period in the latest month.

5. What impact will it have on residents’ families?

The announcement mainly focuses on the interest rates of newly issued personal housing loans. The interest rates of existing personal housing loans will still be based on the original contract. After the pricing benchmark is converted, 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. At the same time, branches of the People's Bank of China will guide the self-regulatory mechanisms for market interest rate pricing at the provincial level to promptly determine the lower limit of the local LPR increase point. Compared with before the reform, when households apply for personal housing loans, their interest payments are basically unaffected.

6. When will it be implemented?

October 8, 2019 is the pricing benchmark conversion date. Prior to this, the lending bank needs to modify the loan contract, transform and upgrade the system, organize employee training, and at the same time, adopt various methods to promote and explain to customers to ensure a smooth and orderly conversion process. Before October 8, 2019, loans that have been disbursed and contracts signed but not disbursed will still be subject to the original contract.