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Source: Times Finance Author: Zhong Dai

On July 22, the People's Bank of China authorized the National Interbank Funding Center to announce that the loan market benchmark rate (LPR) on July 22, 2024 will be: 1-year LPR is 3.35%, and LPR for more than 5 years is 3.85%. Both 1-year and 5-year LPRs have fallen by 10 basis points.

At present, the first mortgage interest rates in Shenzhen, Shanghai and Beijing are all LPR-45BP, which will be reduced to 3.40% after this reduction. According to previous media reports, if the qualifications are met, some banks in Guangzhou can reduce the first mortgage interest rate to 3.05% (LPR-90BP), which means that after the reduction of LPR for more than 5 years, the first mortgage interest rate in Guangzhou can be as low as 2.95%.

Existing mortgage customers have to wait for the loan re-pricing date. The re-pricing date for most existing mortgages is January 1st of each year, which means that the mortgage interest rate will not be adjusted until January of next year.

Li Yujia, chief researcher at the Housing Policy Research Center of the Guangdong Provincial Urban Planning Institute, analyzed that the interest rate cut could boost sentiment for credit demand.

In May, corporate loans increased by 650.3 billion yuan year-on-year, of which medium- and long-term loans increased by 970 billion yuan, a year-on-year decrease of 623.3 billion yuan. Month-on-month, the growth rate of medium- and long-term loans (470 billion yuan) was also weaker than the levels in 2022 (894.6 billion yuan) and 2023 (823.5 billion yuan).

Li Yujia said that the financing demand of the household sector continued to be weak. The household sector added 570.9 billion yuan, of which short-term loans increased by 247.1 billion yuan, a year-on-year decrease of 244.3 billion yuan. Medium- and long-term loans increased by 320.2 billion yuan, a year-on-year decrease of 142.8 billion yuan. Although the housing market sentiment has improved after the implementation of the "package" policy on the 5.17 real estate market, the recovery is not large enough.

Li Yujia said that favorable policies for the real estate market were released intensively in May and June. In July, as the real estate market entered the traditional off-season, the market declined. In the first week of July (July 1-July 8), the transaction volume in cities of all levels fell sharply month-on-month. According to CRIC statistics, the first-tier index fell by 90.11 points month-on-month to 82.66, the second-tier transaction index fell by 54.74 points month-on-month to 43.19, and the key monitored cities fell across the board month-on-month; in the second week (July 9-July 15), the overall downward trend continued, with the first-tier index increasing by 12.21 points month-on-month to 94.92, the second-tier transaction index increasing by 4.25 points month-on-month to 47.46, and the third- and fourth-tier transaction index decreasing by 19.36 points month-on-month to 62.26.

Yan Yuejin, research director of E-House Research Institute, commented that this interest rate cut is a "double cut", that is, both the 1-year and 5-year LPRs have been reduced, which fully demonstrates that the interest rate cut is comprehensive. This has a positive effect on the use of funds in the short and medium-term.

Yan Yuejin pointed out that the 5-year LPR rate cut will help further reduce mortgage costs. From the trend of LPR, it showed a trend of "breaking 4" in the first quarter of this year, that is, it dropped from 4.2% to 3.95%. The second rate cut this year has further guided the reduction of mortgage costs.

According to Yan Yuejin's calculation, based on the current mainstream mortgage interest rates in various places, that is, the pricing formula of "LPR-75BP", the mainstream interest rate for the first home was 3.2% in the past, but it will now drop to 3.1%. According to the repayment method of 1 million yuan loan principal and equal principal and interest for 30 years, the total mortgage interest will be reduced by nearly 20,000 yuan, and the monthly payment will be reduced by 55 yuan. If the continuous interest rate reduction effect is superimposed, the monthly payment burden reduction effect will be very obvious, which will help to combine with other policies to continuously reduce the cost of mortgage loans.

He pointed out that the adjustment of the LPR release policy, which is more closely integrated with the boost to the real economy and the guidance of expectations, will also help further boost the financial market and will play a positive role in better guiding subsequent expectations.