Massive Mortgage Adjustments Expected by Oct 25

The People's Bank of China (PBOC), based on its responsibilities for macroprudential financial management, has formulated and implemented financial policies to support the stable and healthy development of the real estate market. To help the real estate market stabilize and recover, and to promote the construction of a new model for real estate development, on September 24, PBOC Governor Pan Gongsheng announced a package of five real estate financial policies at a press conference. It has been three weeks since then, and the social response has been positive, playing an active role in boosting market expectations and confidence. On September 29, the PBOC published relevant policy documents on its website. Given the widespread concern, I will provide more details on the implementation.

The first policy is to reduce the interest rates on existing mortgages. Mortgage interest rates affect thousands of households, and reducing them is a concrete measure to implement the decisions and arrangements of the Party Central Committee, stand firm on the people's position in financial work, and benefit the people's livelihood. Regarding the progress of the work, on September 29, the PBOC issued an announcement to improve the pricing mechanism for commercial personal housing loans. On the same day, the PBOC guided the market interest rate pricing self-discipline mechanism to issue a self-discipline initiative, and commercial banks also issued announcements. On October 12, major commercial banks issued operational details. Currently, commercial banks are working overtime to amend contracts and systems to prepare for everything. It is expected that most existing mortgages will complete batch adjustments by October 25, which means that everyone can check the adjustment results through the designated channels of the loan bank on October 26. Some small and medium-sized banks may take a slightly longer time to complete the adjustment, but it is expected to be completed by October 31.

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For convenience, the vast majority of borrowers do not need to go to bank branches. For mortgages with floating interest rates, borrowers do not need to apply, and commercial banks will adjust in batches, accounting for more than 90% of existing mortgages. For mortgages with fixed interest rates, borrowers can handle them through online banking and mobile banking of commercial banks, without the need to go to bank branches. For those who obtained mortgages from small and medium-sized banks, due to the imperfection of some small and medium-sized banks' networks, borrowers may need to go to bank branches for handling. Please pay attention to the announcements of the loan banks for specific situations.

Borrowers are also generally concerned about the specific mortgage interest rates after policy adjustments. We have seen a lot of calculations and discussions in society, and I will make a brief explanation. As we all know, mortgage interest rates are composed of loan market报价 interest rates and加点幅度. According to the requirements of this policy, the adjustment is to the加点幅度. For existing mortgages with加点幅度 higher than -30 basis points, the加点幅度 will be uniformly reduced to -30 basis points. For example, the lowest加点for the first set of mortgages in Beijing was previously 55 basis points, and this time it will be reduced to -30 basis points, which means the mortgage interest rate will be reduced by 85 basis points. The lowest加点for the second set of mortgages in Beijing was previously 105 basis points, and according to the minimum city interest rate requirements, this time it will be reduced to -5 basis points, and the mortgage interest rate will be reduced by 110 basis points. The reduction in areas outside the fifth ring will be even greater.

After the adjustment of existing mortgage interest rates, how much can the mortgage be saved? It is estimated that the average interest rate on existing mortgages will be reduced by about 0.5 percentage points, saving a total of 150 billion yuan in interest expenditure, benefiting 50 million households and 150 million residents. Specifically for individuals and families, according to the calculations of commercial banks, taking Beijing as an example, if the original mortgage interest rate for buying a house in Beijing is 4.4%, and after the interest rate adjustment, it is 3.55%, then a 1 million yuan, 25-year equal principal and interest mortgage can save 469 yuan per month, saving more than 140,000 yuan in total interest expenditure. Because there are many operational details involved in the adjustment of existing mortgage interest rates, involving different borrowers in different regions, please refer to the policy and operational details when handling.

The second policy is to unify the minimum down payment ratio for mortgages to 15%. The purpose of this policy is to better support rigid and improved housing needs. After the policy was released on September 24, the PBOC headquarters guided local branches to implement policies according to the city, and cooperate with city governments to quickly implement. At present, except for Beijing, Shanghai, and Shenzhen, the three first-tier cities have taken differentiated arrangements on their own, and most cities in the country no longer distinguish between the first and second sets of housing, and the minimum down payment ratio has been uniformly adjusted to 15%. We have also noticed that many cities have simultaneously adjusted real estate control policies such as purchase restrictions and taxes, and market confidence and sales have improved.

The third policy is to extend the term of two real estate financial policies. This policy is an adjustment to two previously issued policy documents. On September 29, the PBOC and the Financial Regulatory总局have jointly issued an adjustment notice. The first is to adjust the "Financial 16 Articles" in November 2022. The original regulation was that for real estate development loans, trust loans, etc., that are due within half a year, they are allowed to be extended for one year and the loan classification can be unchanged. This policy is beneficial for stabilizing real estate financing and improving the industry's capital situation. It was originally scheduled to expire at the end of 2024, and this time we have extended the policy to the end of 2026. The second is to adjust the management notice of operating property loans in January 2024. The original regulation was that for real estate companies with standardized operations and good development prospects, the operating property loans issued by national commercial banks can be used to repay the company and the group's real estate-related loans and bonds. This policy has relaxed the use of loans and is helpful for real estate companies to improve their capital situation. It was originally scheduled to expire at the end of 2024, and this time we have also adjusted the policy to expire at the end of 2026.

The fourth policy is to optimize the policy of re-lending for affordable housing. Re-lending for affordable housing is a structural monetary policy tool. If you remember, on May 17, the PBOC announced the establishment of 300 billion yuan for affordable housing re-lending to encourage banks to issue commercial loans to support the purchase of unsold commercial housing as allocated or rented affordable housing. The purpose of this policy is to promote the de-stocking of existing commercial housing. From the implementation situation, the PBOC, in cooperation with the Ministry of Housing and Urban-Rural Development, has established a working group under the urban real estate financing coordination mechanism to promote local governments to increase their efforts.

On September 24, based on the needs of previous practices, to further enhance the market incentives for banks and acquisition entities, we have improved the policy, increasing the proportion of re-lending funds provided by the PBOC from the original 60% to 100%, thereby further supporting the willingness to purchase existing commercial housing and accelerating the de-stocking of the real estate market. On September 29, the PBOC has officially issued a notice, and commercial banks will apply for re-lending from October, and recently some commercial banks have made declarations. We believe that with the joint efforts of all parties, the work of purchasing existing houses will make further positive progress.The fifth policy is to support the acquisition of real estate companies' land inventory. The People's Bank of China, in conjunction with relevant departments, is urgently studying to allow policy banks and commercial banks to issue loans to qualified enterprises for the acquisition of real estate companies' land inventory, with the People's Bank of China providing necessary special re-lending support.

Overall, the People's Bank of China has recently introduced a package of financial policies, including reserve requirement ratio cuts and interest rate reductions. These policies, together with the aforementioned real estate financial policies, will continue to have a positive effect on boosting confidence and stabilizing expectations.