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it is imperative to significantly reduce the interest rates of existing mortgage loans and alleviate people's difficulties. the market liquidity released by following the market and benefiting people's livelihood is "live money" that directly enters the economic cycle, which is not comparable to "dead money" that is forced to be released and idling.

written by guan buyu

recently, the news of "interest rate cut for existing mortgage loans" has spread like wildfire, and even triggered a wave of real estate stock market.

in fact, the call for "interest rate cuts on existing housing" has always been very loud. it cannot be said that there was no response before, but it was just a "gesture" and a small response.

01

on the evening of august 31, 2023, the people's bank of china and the state financial regulatory administration issued a notice on reducing the interest rates on existing first home loans.

the notice stipulates that borrowers of existing commercial personal housing loans for first homes can apply to the lending financial institution for the financial institution to issue a new loan to replace the existing commercial personal housing loans for first homes. the interest rate of the newly issued loan is determined by the financial institution and the borrower through independent negotiation, but the markup on the loan market benchmark rate (lpr) shall not be lower than the policy floor for the first commercial personal housing loan interest rate in the city where the original loan was issued.

how should we evaluate it?faced with the choice between "letting customers suffer" and "letting the bank suffer", the bank ultimately sided with them.

picture/tuchong creative

the notice allows for "negotiation", but interbank loan transfers are not allowed and can only be applied for with the lending financial institution. whether to reduce or not and how much to reduce is ultimately decided by the lending financial institution, so "the advantage is mine".

not only that, but they also considerately set a bottom line - the interest rate cannot be lowered to the lower limit of the policy interest rate when buying a house. as a result, the average interest rate for new home mortgages has dropped to the "3-digit" range, while the existing mortgage loans that will catch the "last train of the property market" from 2019 to 2023 are still in the "4-digit" range.

from the perspective of banks, the policy is very effective. it has only reduced interest rates a little bit, which is not a big deal and they are able to make a lot of money.

from the perspective of existing mortgage customers, there is nothing much to worry about.those who can’t pay it back still can’t pay it back, and those who don’t want to pay it back still don’t want to pay it back.

those who cannot pay their mortgages can "pay" their houses. according to monitoring data released by china index academy, in the first quarter of 2024, the number of houses listed for auction in the national judicial auction market reached 219,000, with 100,400 houses listed for auction in january alone, a year-on-year increase of 48.2%.

if you don't want to pay it back, pay it back in advance. in many real estate hotspots across the country, there is a "high enthusiasm" for early loan repayments, and appointments are lined up for more than two months. on august 30, the people's bank of china released the "statistical report on loan allocation of financial institutions in the second quarter of 2024". data showed that at the end of the second quarter of 2024, the balance of personal housing loans was 37.79 trillion yuan, a year-on-year decrease of 2.1%.

financial institutions are unwilling to give up the meat in their mouths, but existing mortgage customers are unwilling to "sit and wait for death". they are doing their best to escape the fate of being trapped by the "arbitrary" "return your house" and the "literal" "early repayment". the interest rate of existing mortgages has been reduced a little bit, but it has not broken the deadlock.

02

the reform of the interest rate policy for existing mortgage loans is called "market-oriented reform", but it cannot even follow market trends.

after the lpr reform in august 2019, the lpr for more than 5 years dropped 7 times, from 4.85% to 4.20%. the operation was as fierce as a tiger, with an average annual decline of 0.12%.

since 2019, china's economy has undergone many changes, but the "market-based interest rate" of existing mortgage loans has remained stable, and the regulatory role of the market mechanism has not been played at all. this is not a "market failure" but a "policy failure."

financial institutions are very confident that real estate accounts for 80% of chinese household assets and is the lifeline for emptying the "six wallets", so the policy design is very overbearing.under the protection of policies, they firmly grasp the pricing power and reap the vested interests of existing housing loans.

picture/video screenshot

however, there is no free lunch in the world, and unilateral benefits that violate market rules will make the economy pay a heavy price.

"bank customers suffer," and the economy suffers. consumers are the first to be affected. mortgage pressure continues to increase, and consumption capacity continues to decline.

data from the national bureau of statistics show that from january to november 2023, the national consumer price index continued to fall. except for the summer window from july to september, the month-on-month and year-on-year growth rates were almost all negative. in the first half of this year, the year-on-year growth rate was stable, but the month-on-month growth rate was still not optimistic.

the consumption situation in the four major first-tier cities, which are important economic centers, is even less optimistic.

the latest data released by the national bureau of statistics show that in june 2024, the year-on-year growth rate of retail sales in beijing, shanghai, guangzhou and shenzhen dropped sharply by 12.8%, 11%, 10.2% and 3.2% respectively compared with may, to -6.3%, -9.4%, -9.3% and -2.2% respectively.

residents of the four first-tier cities are both the main consumers and the main borrowers of mortgage loans.between fish and bear's paw, they chose "bear".

the result of "making customers suffer" is nothing more than people cutting back on their spending. if people are cutting back on their spending, how can we talk about "boosting consumption"? if consumption is discounted, how can we talk about investment?

03

the interest rates on existing mortgage loans remain strong against the trend, which not only squeezes short-term consumer power but also changes the market mentality.

money is dead, but people are alive. since the income growth expectation has disappeared and financial institutions are unwilling to "weather the difficulties together" and make substantial concessions, ordinary people can only take precautions before it happens.

buying a house is obviously impossible, and buying a car has to be slow. big consumption gives way to early repayment of loans. even small money has to be saved for emergencies. big consumption leads to big savings, small consumption leads to small savings. a large amount of money has withdrawn from the circulation basin and fled into bank savings accounts for "safety".

the financial system, which is always penny-pinching and stingy, has become "richer", but instead of picking up the treasure pot as it wished, it is facing the risk of being "burst" by excess deposits.

data from the central bank showed that rmb deposits increased by 10.66 trillion yuan in the first seven months, of which household deposits increased by 8.94 trillion yuan, making them the absolute main force behind the increase in deposits. however, household loans increased by only 1.25 trillion yuan during the same period.

ordinary people deposited 7 yuan and only borrowed 1 yuan, reversing their debt relationship with the bank.now it is the banks’ turn to owe the people a debt. not only can banks not earn the interest rate spread from the new deposit and loan business of households, but they also have to pay interest at a ratio of nearly 1:7.

comparing the data from the first half of 2018, we can better understand how dire the current situation is. household deposits increased by 4.26 trillion yuan, about half of the amount from january to july this year. household loans increased by 3.6 trillion yuan, three times the amount from january to july this year.

there is a serious imbalance between household deposits and loans, and banks have to pay a large amount of interest every month. financial institutions use existing mortgage loans to "control" customers and are "retaliated" by excess deposits.

photo/glacier

at present, the balance of personal housing loans is 37.79 trillion yuan, which is still creating profits for banks and filling the liquidity loss caused by the imbalance of household deposit-loan ratio. however, how many rounds of excessive growth of household deposits can it withstand?

some people may say that the growth of household deposits will eventually come to an end. however, ordinary people's mortgage affordability also has a limit.once there is a "payment default wave" on existing mortgage loans, the entire household financial business will instantly turn into a liquidity black hole. how to clean it up?

financial institutions’ stubborn adherence to the vested interests of existing housing interest rates has turned the 38 trillion yuan of existing housing loans into a bottleneck in the economic cycle—blocking the release of consumer power and adding to market confidence. the pressure of the sluggish economic cycle has “boomeranged” and ultimately backfired on the financial system. the practice of financial institutions stubbornly holding on to existing housing loans is a typical case of “shooting oneself in the foot”, and the lesson is worth pondering.

it is imperative to significantly reduce the interest rates on existing mortgage loans and alleviate people’s difficulties.the market liquidity released in line with market conditions and benefiting people's livelihood is "live money" that directly enters the economic cycle. it is not comparable to the "dead money" that is forcibly released and runs idle.

if ordinary people have more money, a more stable mentality, stronger consumption power, and more confidence in holding real estate for the long term, all of these are real economic driving forces.

economic development that is “people-oriented” is not a moral high tune, but an objective law of the market economy. excessive exploitation that violates the laws of the market will inevitably be retaliated by the market.

don't be lucky and have the mentality of "making customers suffer". good policies with real money must be implemented in a timely and vigorous manner, and you have to grit your teeth and bear the pain. otherwise, if you miss the window period, it will be hard to say.