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Reporter of China Business Network: Zhen Sujing Editor of China Business Network: Chen Mengyu

On July 22, the People's Bank of China authorized the National Interbank Funding Center to announce the loan market benchmark rate (LPR) on July 22, 2024. The one-year LPR was 3.35%, and the LPR for five years and above was 3.85%, both down 10BP (basis points, 1BP=0.01 percentage point) from the previous month, setting a new historical low.

This is the second time that the LPR has been lowered this year since the 5-year and above LPR was sharply lowered by 25 basis points in February this year. Previously, there was no adjustment for four consecutive months, with the 1-year LPR at 3.45% and the 5-year and above LPR at 3.95%.

Many industry experts believe that this "rate cut" is a double cut, that is, the LPR for 1 year and 5 years and above has been lowered, which fully demonstrates that the "rate cut" is comprehensive and has a positive impact on the use of funds in the short and medium term. The reduction of LPR will further reduce the cost of buying a house, which will help release the demand for buying a house. It will form a synergy with the previous supporting policies of "stabilizing the market" and "destocking", and is expected to help further restore the market sentiment in core cities.

Source: Beike, CRIC, Guosheng Securities Research Institute, Guosen Securities Economic Research Institute Yang Jing Charting

The mortgage rate in some cities is 2.9%

Currently, mortgage interest rates in all regions are at a low level.

"The market has already anticipated a downward trend in mortgage rates in the medium to long term. Previously, some banks have begun to cut interest rates in order to compete for mortgage shares." Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, believes that, for example, the lowest interest rate for first-home mortgages in Guangzhou has dropped to around 3.1%.

A reporter from the Daily Economic News noticed that after this interest rate cut, the interest rate for first-home commercial loans in some cities is expected to drop to 2.9%, which is even more advantageous than the provident fund loan interest rate in some cities.

A local intermediary in Foshan told reporters that some banks in Foshan have already offered a first mortgage rate of 2.9%, and the requirements for lenders are not very strict. As long as there is no problem with the credit report and the bank has bank flow, the loan can be released within two days. Before the LPR adjustment, the interest rate for commercial personal housing loans in Foshan for the first home was 3.0% and more than 12 banks implemented a first mortgage rate of 3.15%.

Yan Yuejin, research director of the E-House Research Institute, said that after the LPR reduction for terms of five years and above, the total mortgage interest will be reduced by nearly 20,000 yuan and the monthly payment will be reduced by 55 yuan for a loan principal of 1 million yuan and a repayment period of equal principal and interest for 30 years.

Chen Wenjing, director of market research at China Index Academy, believes that taking Beijing as an example, the previous interest rates for the first and second sets of mortgage loans were 3.5% (LPR minus 45BP), 3.7% (outside the Fifth Ring Road, LPR minus 25BP)/3.9% (within the Fifth Ring Road, LPR minus 5BP). After this reduction, the interest rates for the first and second sets of mortgage loans in Beijing are adjusted to 3.4% (LPR minus 45BP), 3.6% (outside the Fifth Ring Road, LPR minus 25BP)/3.8% (within the Fifth Ring Road, LPR minus 5BP), among which the interest rate for the first set of mortgage loans is lower than the previous historical lowest level (3.43%).

"Interest rate cut" is good for home buyers

Every adjustment of mortgage interest rates affects the hearts of hundreds of millions of families.

In addition to benefiting new homebuyers, the adjustment of LPR will also bring good news to families who are currently repaying their loans. Based on the same calculation of a loan principal of 1 million yuan and a 30-year equal principal and interest repayment method, after the interest rate is reduced by 10 basis points, the monthly repayment will be reduced by about 58 yuan, and the total interest will be saved by about 20,656 yuan. However, according to current regulations, the effect of the interest rate reduction will not be apparent until the repricing date specified in the contract, which is usually the loan issuance date or January 1 of each year.

Regarding the interest rate cut, an early homebuyer told reporters that after several LPR adjustments, his mortgage interest rate has dropped from the initial 4.6% to 4.25%. "The stock is adjusted once a year. We adjusted it once in May this year. We will probably have to wait until May next year to enjoy the latest (interest rate cut)." The homebuyer said.

Yan Yuejin said that the impact of the LPR adjustment on existing mortgage loans may not be reflected until next year, when the relevant mortgage costs may be further reduced. Considering that the LPR has been reduced by 35BP this year, the monthly payment pressure of a 1 million yuan mortgage loan is expected to be reduced by 175 yuan next year.

"The market expects interest rates to continue to fall, so apart from those who have urgent needs, other buyers may choose to wait, especially when housing prices are still falling and there is an expectation of a fall." Li Yujia believes that "the current high-profile calls for interest rate cuts on existing mortgage loans actually refer more to lowering the basis point. If the gap between the current new mortgage rates and the early existing mortgage rates continues to widen, the work of lowering the interest rates on existing mortgages in the second half of the year may be put on the agenda."

Daily Economic News