China may cut existing mortgage rates by the end of October

Banks cut rates on existing mortgage loans by around 50 bps
Three major cities have lifted restrictions on buying primary homes
The measures are aimed at weak property markets, boosting spending

BEIJING, Sept 29 (Reuters) – China's central bank said on Sunday it will ask banks to cut mortgage rates for existing home loans before Oct. 31, as part of a sweeping policy to support the country's troubled property market as the economy slows.

Commercial banks should, in batches, cut interest rates on existing mortgages by 30 basis points (bps) below the Loan Prime Rate (LPR), the central bank's benchmark rate for mortgages, according to a statement released by the People's Bank of People's Bank. China (PBOC).

This is expected to reduce existing mortgage rates by around 50 bps on average.

Across China, several policies including down-payment ratios and mortgage rate cuts have been introduced this year to support China's crisis-hit property market.

But stimulus measures have struggled to boost sales or boost liquidity in markets shunned by buyers that remain a big drag on broader economic growth.

Adding to such efforts, the city of Guangzhou announced on Sunday the lifting of all restrictions on home purchases, while Shanghai and Shenzhen said they would ease restrictions on housing purchases by non-local buyers and lower the minimum downpayment ratio to 15 for first-home buyers. . %

Reuters reported on Friday that Shanghai and Shenzhen plan to lift key remaining restrictions to attract potential buyers.

Sunday's announcements came after China on Tuesday unveiled its biggest stimulus since the Covid pandemic to pull the economy out of its deflationary funk.

'Emergency adjustments' to boost sales

Property-related figures released earlier this month showed that new home prices fell at the fastest pace in more than nine years in August and property sales fell 18.0% in the first eight months of the year.

The mortgage rate cuts set by the central bank are aimed at easing the mortgage burden on homeowners, boosting the property market and weak domestic consumption demand.

“As market-based reforms on interest rates deepen, and the supply and demand relationship in the real estate market undergoes major changes, the current mortgage rate pricing system has exposed some flaws,” the PBOC said in its statement.

“With the public reacting strongly (to the situation), the process requires urgent coordination and optimization,” the PBOC added.

China's four largest state-owned banks, including Industrial and Commercial Bank of China Ltd. (601398.SS)A new tab opens and China Construction Bank Corp (601939.SS)A new tab opensThey are actively responding to policy and promoting orderly adjustment of existing mortgage interest rates.

Most local governments have already abolished floors on mortgage rates, except for some megacities, including Beijing and Shanghai.

Previous mortgage rate cuts primarily benefited new home buyers, leaving existing homeowners with higher rate loans. This has resulted in households rushing to pay off existing mortgages early, which further hampers household spending and consumption.

The outstanding value of private mortgages stood at 37.79 billion yuan ($5.39 billion) at the end of June, down 2.1% year-on-year, according to official data.

The PBOC announced on Sunday that it will extend the facility of real estate development loans and trust loans to developers until the end of 2026 to better meet the financing needs of developers.

($1 = 7.0110 Chinese Yuan Renminbi)

Reporting by Ziyi Tang, Ryan Wu and Ellen Zhang; Edited by Kirsten Donovan and Helen Popper

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