China allows more mortgage interest rates for home buyers

BEIJING: Chinese financial authorities on Sunday allowed a further cut in mortgage interest rates for some home buyers, in a move to prop up its property market and revive a flagging engine of the world's second-largest economy.

Commercial banks can reduce the lower limit of interest rates on home loans by 20 basis points, based on the corresponding tenor of benchmark loan prime rates LPRs, said in a statement by the People's Bank of China PBOC and China's Banking and Insurance Regulatory Commission.

The statement said that the cut was intended to support demand and promote healthy development of the real estate market.

In its monthly fixing in April, the PBOC kept its one-year LPR unchanged at 3.70 per cent and the five-year LPR at 4.60 per cent, which is typically used as a benchmark for mortgage loans.

Banks in many cities cut mortgage rates in the first quarter after a call from authorities to support buyer sentiment in a market that was rocked by a liquidity crunch and troubled developers last year, and now by nationwide COVID-19 outbreaks.

The policies including lowering down payments, lowering mortgage interest rates, loosening restrictions on secondhand housing sales and loosening purchase restrictions will create better conditions for active market transactions in mid-to-late May, said Yan Yuejin, research director of the E-house China and Development Institute.

The latest loan guidance came after the central bank data showed that new bank loans plunged to their lowest in more than four years in April, as varying degrees of COVID lock downs in dozens of cities curbed lending, with mortgage loans contracting.

In order to free up more money for lending, the PBOC cut the amount of cash that lenders must set aside as reserves on April 25. More modest easing measures are expected as authorities vow to roll out more policies to support the economy.

Much depends on the banks, despite the easier mortgage loan guidance.

"Banks tend to be more risk-averse during the lock-downs," said Iris Pang, senior Greater China economist at ING, after the central bank data.

They have been told to keep past-due loans on their books. Under these circumstances banks have become unwilling to create new loans, because they would mean taking on more risk by getting new loans and waiting for them to become past due to lock downs.