summary

as housing prices fall and market interest rates decline, the interest rate spread between existing and new mortgage loans has rapidly widened. with the significant increase in residents' early loan repayments, the interest rate on existing mortgage loans is expected to fall further.

text｜tang jun

editor: zhang wei and yuan man

"paying off a mortgage early can be addictive," a beijing-based netizen wrote on a social media platform, showing several screenshots of early mortgage repayments.

zhou lin, a homebuyer, agrees with this. recently, he submitted his third early loan repayment application to the bank this year, with a repayment amount of 40,000 yuan, which is expected to be deducted in september. zhou lin told caijing that the main reason for his early loan repayment was that his mortgage interest rate was 135 basis points higher than the newly issued mortgage, and the huge interest rate gap was difficult for him to accept.

on may 17, 2024, the people's bank of china (hereinafter referred to as the "central bank") announced a number of real estate finance optimization policies (hereinafter referred to as the "517 new policy"), including the cancellation of the national lower limit on mortgage interest rates. various cities have successively canceled or significantly lowered the lower limit on mortgage interest rates. in addition, the lpr for terms of 5 years and above has been reduced by 35bp since the beginning of the year, and the interest rate spread between existing and new mortgage loans has rapidly widened.

taking beijing as an example, as of august 30, the interest rate for newly issued first-home mortgages in beijing was 3.4%, while the interest rate for existing first-home mortgages was as high as 4.75%, with a spread of 135bp.

guotai junan securities research shows that in april 2024, the early repayment rate index of residents reached a historical high of 37%, reflecting a significant increase in residents' early loan repayment behavior. at the same time, the interim reports of listed banks showed that the balance of housing loans of state-owned banks and joint-stock banks decreased in the first half of the year.

faced with the above pressure, many home buyers told caixin that banks have set certain thresholds for their early loan repayments. the more common requirement is to make an appointment for deduction of payment at least one month in advance, and interest will be calculated as usual during this period.

"this is similar to the situation in 2023." lu ting, chief economist of nomura china, wrote that the current interest rate spread between existing and new mortgage loans has widened to 90bp-130bp, and the pressure on the central bank to lower the interest rates on existing mortgage loans is increasing.

in june 2023, the interest rate spread between existing and new mortgage loans nationwide reached 100bp. in august 2023, the scale of residents' early loan repayments reached 432.45 billion yuan, which is equivalent to the average monthly scale of new mortgage loans.

at the end of august 2023, the central bank announced that it would guide commercial banks to centrally lower the interest rates on existing first-home mortgages, with an average reduction of 73bp, reducing interest expenses for borrowers by approximately 170 billion yuan each year.

the "china regional financial operation report (2024)" disclosed that after the policy was introduced, the average monthly prepayment amount of mortgage loans from september to december fell by 10.5% compared with before the policy was introduced (august 2023). a survey by the chongqing branch of the central bank showed that more than 30% of the residents surveyed planned to use the saved interest expenses to increase consumption. from october to december 2023, the growth rate of social retail sales was the highest in the past three years.

according to data from the central bank, as of the end of june 2024, the balance of various rmb loans of financial institutions was 250.85 trillion yuan, an increase of 8.8% year-on-year. among them, the balance of personal housing loans nationwide was 37.79 trillion yuan, accounting for about 15.06%.

"the central political bureau meeting in july proposed that domestic demand should be expanded with a focus on boosting consumption, and lowering the interest rates on existing mortgages is an effective policy option to promote consumption." lu ting said that the central bank is expected to guide commercial banks to lower the interest rates on existing mortgages in the coming months, and the extent of the interest rate reduction is expected to be similar to that at the end of 2023.

but the current situation is not entirely the same as it was a year ago. in june 2024, the net interest margin of commercial banks was 1.54%, a year-on-year decrease of 20bp.

"lowering the interest rates on existing mortgage loans again can boost consumption, but there has been no adjustment yet, mainly because of the impact on banks," sheng songcheng, professor of economics and finance at china europe international business school, told caixin. "banks account for more than 90% of the financial industry, and the central bank's policies have to take banks into consideration, but not in terms of their interests, but in terms of their risks, their survival, and their ability to continue to support the development of the real economy."

at noon on august 30, some media reported that the people's bank of china is considering further lowering the interest rate on existing mortgage loans to reduce residents' debt burden and boost consumption. the central bank did not respond to this.

when the market opened in the afternoon of the same day, the a-share real estate sector rose across the board, with two real estate etfs rising by more than 5%, and many stocks such as gemdale group and tiandiyuan hitting their daily limit; the consumer sector rose sharply, with the consumer electronics etf rising by more than 4%, and stocks such as lingyi intelligent manufacturing, mindray medical, and haitian flavoring leading the gains; bank stocks fell more than they rose, with bank of communications and china construction bank leading the declines.

in the aforementioned report, the central bank stated that in the next step it will urge financial institutions to continue to implement the results of lowering the interest rates on existing mortgages, rationalize the relationship between incremental and existing mortgage interest rates, effectively reduce residents' interest burden, and release the public's investment and consumption motivation.

widening interest rate spread: more prepayments

"after paying off this in september, there is still 840,000 yuan of commercial loan principal, which i plan to pay off within three years."

zhou lin told caixin that after keeping an emergency reserve fund, he has used almost 95% of his family's income to repay the loan in advance in the past two years, and daily expenses are mainly balanced by tightening his belt and relying on support from his parents.

in 2021, zhou lin, then 29 years old, bought his first house in beijing and also took out a personal housing loan of 1.54 million yuan with an interest rate of lpr+55bp.

what zhou lin didn't expect was that he bought the house just before the mortgage interest rate went down.

on the one hand, since january 20, 2022, the central bank has guided the lpr of 5 years and above to be reduced by 80bp cumulatively. on the other hand, since the end of 2023, beijing has lowered the lower limit of mortgage interest rates twice. the latest lower limit of the first mortgage interest rate has been reduced to lpr-45bp, and the increase has decreased by 100bp cumulatively.

data from the central bank show that in the fourth quarter of 2021, the weighted average interest rate of newly issued mortgage loans nationwide was 5.63%, and has since declined quarter by quarter, falling to 3.45% in the second quarter of 2024. at the same time, the interest rate for newly issued first mortgage loans in beijing has also dropped from 5.2% in 2021 to 3.4%.

from october 2019 to december 2023, the lower limit of the first home loan interest rate in beijing is lpr+55bp. people who buy houses in beijing during this period will have a different feeling about the mortgage interest rate.

on the one hand, most existing mortgage lprs are reset on january 1 each year, so they often lag behind new mortgage borrowers in enjoying the benefits of lower interest rates. on the other hand, since the mortgage interest rate markup agreed in the contract is fixed, no matter how the lpr is adjusted, the interest rate on existing mortgages will always be 100bp higher than that of borrowers who purchase houses after june 2024.

as of now, zhou lin's mortgage interest rate is 4.75%, which is 135bp higher than the latest 3.4% implemented in beijing. the huge gap between the old and new mortgage interest rates makes it difficult for zhou lin to accept. at the same time, zhou lin is also facing housing price fluctuations. according to data from the national bureau of statistics, since october 2023, the year-on-year growth rate of beijing's second-hand residential sales price index has continued to be negative, indicating that housing prices have continued to fall. the latest data in july was -7.2%. zhou lin's house valuation has fallen by about 20% compared to when he bought it.

since january 2022, zhou lin has applied for early repayment every few months, with the amount ranging from tens of thousands to 200,000 or 300,000 yuan. over the past two years, zhou lin has repaid a total of about 600,000 yuan in advance.

"when we bought the house, we emptied six wallets. our small family has no savings left after the purchase. now the main source of financial pressure is the mortgage. in order to save money to repay the loan in advance, we basically spend as little as possible except for necessary expenses." zhou lin said.

hu ying from shanghai also faces a huge interest rate gap between new and old mortgages.

in april 2023, hu ying bought a house in shanghai and applied for a commercial housing loan of 1.2 million yuan from the bank. the contract stipulated an interest rate of lpr+35bp, and the repricing date was the contract signing date. currently, her mortgage interest rate is 4.3%, which is 90bp higher than the latest first-home mortgage rate in shanghai.

"mortgage interest rates are still relatively high. it is better to use the money in hand to reduce leverage. reducing leverage can reduce pressure." hu ying said that the yields of wealth management products have gradually declined in recent years. as a financial practitioner, she judged that the yields would be difficult to recover in the short term, so she decided to clear out her wealth management products and repay the loan in advance.

in may 2024, when the mortgage contract expired one year ago and he could apply for early repayment, hu ying immediately submitted an application for early repayment, paying a one-time payment of nearly 1 million yuan, reducing the housing loan to 200,000 yuan.

zhou lin and hu ying's experiences are not isolated cases. recently, terms such as "early loan repayment" and "loan repayment addiction" have become hot topics on major social platforms.

typing "early loan repayment" in the search box of a social platform will display more than 30,000 related results.existing mortgage borrowers who bought houses when interest rates were relatively high shared their experiences of early loan repayment with each other and also discussed other ways to lower existing mortgage interest rates. they called this series of actions "self-rescue."

in june, the macroeconomic research team of guotai junan securities calculated the resident early repayment rate index (cpr) with reference to the compilation method of the rmbs (mortgage-backed securities) conditional early repayment rate index released by the national interbank funding center. since february 2024, the resident early repayment rate index has accelerated upward, reaching a historical high of 37% in april (excluding the technical adjustment in october 2023), reflecting a significant increase in residents' early loan repayment behavior.

data from the central bank showed that in the first half of 2024, the cumulative increase in medium- and long-term loans to residents was 1.18 trillion yuan, a year-on-year increase of 280 billion yuan. among them, the increase in medium- and long-term loans to residents in june was 320.2 billion yuan, a year-on-year increase of 142.8 billion yuan.tianfeng securities believes that after the incremental loan interest rate was lowered, the widening spread between incremental and existing loans led to early loan repayments, which may be one of the reasons for the continued narrowing of the incremental medium- and long-term loans for residents.

existing mortgage loans: calls for interest rate cuts re-emerge

the interest rate spread between new and existing mortgage loans is mainly related to the mortgage interest rate pricing method.

according to zou lan, director of the people's bank of china's monetary policy department, 99% of home loans are priced using a floating interest rate mechanism, which is based on the lpr. a surcharge is chosen when signing the contract, and the range of the surcharge is agreed upon based on market supply and demand at the time of issuance. the surcharge remains fixed during the contract period.

industry insiders believe that, overall, most mortgages issued before 2022 have a high markup. with the repeated optimization and adjustment of mortgage interest rate policies, the interest rate spread between existing and new mortgages has gradually widened.

around june 2023, the interest rate spread between existing and new mortgage loans nationwide will reach about 100bp. the number of residents repaying their loans in advance has increased significantly.

at the end of august 2023, in order to reduce the interest burden of residents and support the expansion of consumption, the central bank and the state administration of financial supervision jointly promoted commercial banks to lower the interest rates of existing first home loans. the interest rates of more than 23 trillion yuan of existing mortgage loans were lowered, and the adjusted weighted average interest rate was 4.27%, with an average decrease of 73bp.

however, in the 2023 adjustment, the new implementation rate must not be lower than the lower limit of the first mortgage rate in the city where the original loan was issued. according to zou lan, after the adjustment, the interest rates of most existing first mortgage loans that meet the requirements will be reduced to lpr, and those after may 2022 will be reduced to lpr-20bp, directly lowered to the policy lower limit.

according to lu ting's calculations, for the existing mortgage loans of about 30 trillion yuan between 2015 and 2022, the interest rate of existing mortgage loans is estimated to be around 5.2% on average. after the interest rate of existing mortgage loans is reduced by an average of 73bp in 2023, it is estimated that the current interest rate of existing mortgage loans is around 4.5% on average.

since the beginning of this year, with the introduction of the "517 new policy", the central bank announced the cancellation of the national mortgage interest rate policy floor, and most cities canceled or significantly reduced the mortgage interest rate floor in accordance with local conditions.

from may 27 to 28, shanghai and shenzhen lowered the floor rates for first and second home mortgages by 35bp respectively, to lpr-45bp and lpr+5bp respectively.

on may 28, guangzhou announced the cancellation of the lower limit of mortgage interest rates. major local banks reached a consensus on mortgage interest rates: the first mortgage rate was reduced to lpr-55bp, and the second mortgage rate was reduced to lpr-15bp. on july 15, guangzhou's first mortgage rate was further reduced by 20bp to lpr-75bp.

on june 26, beijing announced that the lower limit of the first home loan interest rate would be reduced to lpr-45bp, and the lower limit of the second home loan interest rate would be lpr-5bp (within the fifth ring road) and lpr-25bp (outside the fifth ring road).

as of the end of june, the lower limits on first and second home mortgage interest rates have been cancelled in all cities except the three first-tier cities of beijing, shanghai and shenzhen.at present, the lower limit of the first mortgage rate in beijing, shanghai and shenzhen is lpr-45bp. guangzhou has abolished the lower limit of mortgage rates. according to media reports, the first mortgage rate of some banks in guangzhou has been as low as 2.9% (lpr-95bp).

as a result, the interest rate gap between new and old mortgage loans widened again.taking beijing as an example, after june 26, the difference in the interest rate markups between new and old mortgages could reach 100bp, and even the interest rate markup for the existing first mortgage was 60bp-80bp higher than that for the newly added second mortgage, resulting in a huge interest rate gap.

in february and july 2024, the central bank guided the lpr of 5 years and above to decline by 35bp cumulatively twice, further widening the interest rate spread between new and existing mortgage loans. according to lu ting's calculation, the current interest rate spread between existing and new mortgage loans is about 90bp-130bp.

as a result, existing mortgage borrowers also hope that commercial banks will once again lower the interest rates on existing mortgages.

on the leadership message board of people's daily online, a resident left a message to the relevant person in charge of the central bank saying that the interest rate for the first home loan has been significantly reduced, and suggested that the interest rate for existing mortgage loans should be adjusted accordingly.

on social platforms, some users posted the public contact information of the central bank and other financial management departments, calling on netizens to jointly reflect their demands to the financial management departments and demand a reduction in the interest rates on existing mortgage loans.

"with falling housing prices and continued downward market interest rates, the interest rates on existing mortgages are already at a relatively high level, which may affect the entry of new rigid demand and the stability of housing prices." zhang ming, deputy director of the institute of finance of the chinese academy of social sciences, told caixin, "at present, the overall interest rate on existing mortgages is about 100bp higher than that on new mortgages. i think it is reasonable to reduce it by 50bp-80bp."

at the same time, zhang ming said that lowering the interest rates on existing mortgage loans can save residents, especially highly leveraged households, considerable interest expenses and alleviate the crowding-out effect of mortgage loans on consumption."this move has a positive impact on consumption and many other aspects, so it is worth considering," zhang ming said.

according to the calculation of tianfeng securities' real estate team, from july 2023 to july 2024, the balance of new medium- and long-term loans to residents accounted for about 5.94% of the balance of personal housing loans, reflecting that the scale of existing loans with higher interest rates is still large. "we believe that if the interest rates of existing mortgage loans are appropriately lowered at this point in time, the consumption potential of residents may be partially released, and at the same time, the scale of 'early loan repayment' can be curbed," tianfeng securities said.

dong ximiao, chief researcher at china unionpay, believes that interest rates are the price of funds. the price of funds varies in different periods, and mortgage interest rates are also high and low, which is the same as the difference in housing prices in different periods. "the current interest rate for first-home mortgage loans is already the lower limit of the city's mortgage interest rate when the loan is issued. it would be unfair to lower it again."

in dong ximiao's view, there are currently two situations in which it is possible to consider lowering the interest rate on existing mortgage loans:first, it is recommended to reduce the interest rates of existing second-home mortgage loans that were not included in the previous round of centralized reductions; second, after various cities adjust the standards for identifying the number of housing units, it is recommended to reduce the mortgage interest rates corresponding to the first home.

sheng songcheng told caijing that he suggested lowering the interest rates on existing mortgage loans again. "if the interest rates on existing mortgage loans fall, the interest saved can really support consumption," sheng songcheng said, but it is indeed very difficult to implement and the willingness of commercial banks must be considered.

banks’ dilemma: narrow interest rate spreads and falling balances

according to previous estimates by the china banking research institute, if the interest rate of existing mortgage loans is reduced by 50bp, the bank's net interest margin will be reduced by 7bp, operating income will drop by 3%, and net profit will decrease by 6%.

data from the financial supervision administration show that as of the second quarter of 2024, the net interest margin of commercial banks was 1.54%, down 20bp year-on-year, the lowest level since statistics were available. among them, the net interest margin of large banks in the second quarter was 1.46%, down 21bp year-on-year, also the lowest level since statistics were available.

in the first half of 2024, the revenue and profits of many large state-owned banks showed negative year-on-year growth. at the recent intensive mid-term performance release conferences of listed banks, relevant persons in charge of many banks said that the downward trend in revenue growth was related to the pressure on net interest margin.

at the 2024 mid-year results conference, bank of communications president zhang baojiang admitted that commercial banks face three major pressures in the short term. first, the growth rate of business scale may continue to slow down. second, there is considerable pressure to stabilize the net interest margin. third, the risk control pressure in key areas such as real estate cannot be ignored.

"on the asset side, the 5-year lpr rate has experienced two rounds of cuts this year, which has exerted downward pressure on the yield on the asset side. on the liability side, the deposit structure continues to be regularized, and the liability cost shows a certain rigidity. the interest rate spread has narrowed. coupled with the decline in the growth rate of (credit) scale and the weakness of interest rate income, commercial banks are facing great pressure on the income side." zhang baojiang said.

zhou wanfu, deputy president of bank of communications, predicts that the impact of factors such as the reduction in existing mortgage interest rates in 2023, the "517 new policy" and the two reductions in lpr in 2024 on the bank's net interest margin will continue to be evident in the second half of the year. at the same time, the current trend of regular and long-term deposits has not been alleviated, which has affected the downward trend of liability costs to a certain extent. "from a full-year perspective, our goal is to keep the net interest margin basically stable and strive for marginal improvements. it is difficult and challenging to achieve this," zhou wanfu said.

in order to ease the pressure on banks' net interest margins, since august 2022, large state-owned banks have led five rounds of deposit rate cuts to reduce liability costs.

as of now, the listed interest rates of major bank deposits have bid farewell to 2% and entered the “1” digit.

taking the industrial and commercial bank of china as an example, the bank's current interest rate for demand deposits is currently 0.15%; for fixed-term deposits with full deposit and withdrawal, the interest rates for 3 months, 6 months, 1 year, 2 years, 3 years, and 5 years are 1.05%, 1.25%, 1.35%, 1.45%, 1.75%, and 1.8% respectively.

compared with before september 15, 2022, the bank's listed interest rates for various deposit products have been reduced by 15bp to 100bp. among them, the listed interest rate for three-year time deposits (lump deposit and withdrawal) has dropped from 2.75% to 1.75%, a decrease of 100bp.

in order to effectively reduce high-cost bank deposits, in april this year, the market interest rate pricing self-discipline mechanism issued the "initiative on prohibiting the use of manual interest subsidies to attract high-interest deposits and maintaining the competitive order of the deposit market", requiring that from now on, banks shall not promise or pay interest subsidies to customers in any form that exceed the authorized upper limit of deposit interest rates.

as of the end of july, the balance of m1 (narrow money) was 63.23 trillion yuan, a decrease of about 5.4 trillion yuan from the end of march 2024. m1 is mainly composed of cash and corporate demand deposits. lin yingqi, a banking analyst at cicc, wrote that the negative growth of m1 was mainly related to the outflow of corporate deposits from banks due to the cleanup of manual interest payments.

at the same time, the pressure of credit loss caused by early loan repayment is also testing commercial banks.

as of the end of june this year, the balance of personal housing loans nationwide was 37.79 trillion yuan, down 2.1% year-on-year, and about 410 billion yuan less than at the end of 2023. annual report data shows that as of the end of 2023, the balance of personal housing loans of the five major state-owned banks, industrial and commercial bank of china, agricultural bank of china, bank of china, china construction bank, and bank of communications, totaled 24.16 trillion yuan, down 2.40% year-on-year.

the latest interim report data shows that in the first half of 2024, the balance of personal housing loans of many listed banks such as bank of china, bank of communications, shanghai pudong development bank, and industrial bank decreased. among them, the balance of housing loans of industrial bank decreased by more than 10 billion yuan.

many interviewees said that personal housing loans have a low non-performing rate and relatively high yields, and are still the best assets of commercial banks. a decline in mortgage balances is not something banks want to see.

against this backdrop, banks have quietly raised the threshold for early loan repayments.

caijing learned from some banks and borrowers that most banks currently require a one-month waiting period for early loan repayment applications, and some banks require up to three months. in addition, many borrowers reported that some small and medium-sized banks have restrictions on the number of early loan repayments, and some banks only allow applications once a year.

in this regard, many borrowers told caijing that they now make an appointment for the next early repayment every time the bank deducts the money. "the time between two repayments is just right for saving money," said one borrower.

"i estimate that the interest rates on existing mortgage loans will have to be lowered sooner or later." a credit business manager of a joint-stock bank branch told caixin, "if there is no adjustment, the deposit (balance) may also fall, and the loan (balance) may also fall."

a person from the personal loan department of a major bank told caixin that the bank is conducting relevant research, but is not sure whether it will be implemented in the end.

it is worth noting that the non-performing rate of banks' mortgage business has shown signs of rising.

according to incomplete statistics from caijing, as of august 29, the five listed banks that have released their interim reports have all seen an upward trend in personal housing loan non-performing loans. among them, the non-performing loan ratios of china citic bank, ping an bank, shanghai pudong development bank, bank of communications, and industrial bank have increased by 21bp, 14bp, 13bp, 11bp, and 9bp respectively compared to the end of 2023.

according to the monitoring data recently released by market agency cric, in the first half of 2024, the number of foreclosed properties nationwide reached 202,000, a year-on-year increase of 12%. among them, the effective auction volume was 166,000 units, 28,000 units were sold, and the average transaction rate was 17%, a decrease of 7 percentage points from the same period last year.

in fact, it is not just personal housing loans. the interim report shows that the non-performing rates of retail loan businesses such as credit card loans and personal business loans of many banks have increased.

at the semi-annual performance conference, liu jianjun, chief risk officer of bank of communications, admitted that the non-performing loans of retail business increased in the first half of the year. at the same time, affected by the recovery of the macro economy and the adjustment of the real estate industry, it is expected that there will still be some downward pressure on the asset quality of retail loans in the second half of the year.

replacement mortgage loans: banks strengthen supervision

it is still uncertain whether the existing mortgage loans will be reduced, but the interest rates on consumer loans and business loans have already declined significantly.

at present, bank consumer loans and business loans have basically entered the "2" digit.

according to media reports, the annual interest rate for the first loan of a consumer loan product of ningbo bank is as low as 2.98%, and the interest rate of a consumer loan product for white-collar workers of ping an bank is as low as 2.88% after preferential treatment. in terms of business loans, many loan intermediaries said that the current interest rate of mortgage business loans of large state-owned banks is as low as 2.8%, and the term can be up to ten years.

in comparison, the weighted average interest rate for newly issued home loans in the second quarter was 3.45%, and the interest rate for a considerable number of existing home loans was around 4%.based on beijing's existing mortgage rate of 4.75%, the interest rate spread with business loans is close to 200bp.

the huge interest rate gap has forced some mortgage borrowers to take risks and replace high-interest loans with low-interest loans.a borrower from beijing told caixin that he had replaced part of his mortgage loan with business loans or consumer loans.

"it is not advisable to replace personal housing loans by applying for business loans or personal consumption loans." dong ximiao reminded that the use of business loans and consumer loans is clearly stipulated, and illegal use may affect personal credit. if you forge fund flow and business license in order to apply for a loan, you may be suspected of breaking the law and even violate the criminal law.

since 2021, there have been frequent cases of personal business loans being used illegally to replace home loans.

in august 2021, the shenzhen regulatory authorities announced the results of an investigation into the real estate speculation incident involving "shenfangli". it was found that relevant personnel of "shenfangli" were suspected of forging official documents of state organs, providing false information to obtain loans, and evading the monitoring of capital flows by means of multiple transfers, breaking down large amounts into small pieces, and withdrawing cash, and other behaviors that disrupted the order of the financial market. a total of different categories of loans were involved, including housing mortgage loans, operating loans, and consumer loans. the total amount of problematic loans was 1.064 billion yuan, of which 380 million yuan involved operating loans.

dai zhifeng, director of the china securities research institute, told caixin that as of the first half of 2024, the scale of personal business loans nationwide will reach 23.8 trillion yuan, doubling from 11.4 trillion yuan at the end of 2019.

specifically, from 2020 to 2023, personal business loans will increase by 2.3 trillion yuan, 2.6 trillion yuan, 2.7 trillion yuan, and 3.3 trillion yuan respectively. in the first half of 2024, personal business loans will increase by 1.65 trillion yuan, maintaining high growth.

in terms of structure, since 2022, the net increase in medium- and long-term operating loans has been significantly higher than that in short-term operating loans. data show that in 2022, 2023, and the first half of 2024, medium- and long-term operating loans increased by 500 billion yuan, 660 billion yuan, and 350 billion yuan more than short-term operating loans, respectively. "it can be seen that the increase in personal operating loans in the past two years is mainly contributed by medium- and long-term operating loans with a term of more than one year," said dai zhifeng.

according to dai zhifeng's estimation, the total amount of consumer loans and business loans used for house purchases in 2021 will be approximately 3.16 trillion yuan. assuming that business loans account for about 70%, the total amount will be 2.21 trillion yuan.

dai zhifeng said that the growth rate of personal business loans of listed banks has declined in the first half of the year, and since 2021, regulators have strictly checked the flow of personal business loans. banks' pre-loan approval has become stricter, and the actual mortgage rate approved is mostly lower than 70%, and some are even as low as 50%. the safety cushion is relatively thick, and banks carry out post-loan management measures such as regular revaluation of the value of collateral and additional guarantees."it is expected that commercial banks will implement stricter approval policies for personal business loans."

recently, many borrowers who used business loans to replace mortgage loans have said on social platforms that they were asked by banks to settle their loans in advance. in response, the aforementioned joint-stock bank personnel said that banks have strengthened supervision over the use of business loan funds.

in addition to borrowing new money to repay old debts, some borrowers are considering transferring their ownership to a new loan.the specific operation method is: transfer the house to a trustworthy third party (usually parents), and apply for a loan from the bank again in the name of the third party, so that you can enjoy the latest first-home mortgage interest rate.

a loan intermediary who claims to be able to help with this business told caijing that the threshold for refinancing is relatively high, and it is best if the parents are eligible to buy a house and have no need to replace the property in the past five years. "if you can't find a trustworthy transferor, the risk will be relatively high, and it is not recommended to do so." the intermediary said.

in addition, more than 30 cities including shenzhen, suzhou, fuzhou, xiamen and zhengzhou have recently launched the "commercial to public" business, which allows eligible applicants to convert commercial housing loans into provident fund housing loans.

the current interest rate for the first housing provident fund loan is 2.85%, and the "commercial to public" business is considered by many to be an alternative to "lowering the interest rate of existing mortgage loans." after a zhengzhou resident applied for the "commercial to public" business, his mortgage interest rate dropped from 4.25% to 2.85%, and his monthly payment was reduced by about 500 yuan.

since 2023, residents from all over the country have been calling for the implementation of "commercial to public" mortgage business, but some cities have clearly stated that they will not carry out the "commercial to public" mortgage business for the time being.

according to incomplete statistics from caijing, beijing, shanghai, guangzhou, chengdu, hangzhou, xi'an, nanjing and other real estate hotspots have not yet started the "commercial to public" business. among them, hangzhou, nanjing, guangzhou and other cities said in response to residents' inquiries that the utilization rate of local housing provident funds is high, and there is even a funding gap, and they are temporarily unable to carry out the "commercial to public" business.

"we can only call for a reduction in the interest rates on existing mortgage loans." after learning that "commercial to public" could not be processed in his city, a mortgage borrower told caixin.

existing interest rate cuts: expected to boost consumption

if the interest rate on existing mortgage loans is lowered again, where will the interest savings of households go?

"saving money will also increase consumption." zhou lin expressed his thoughts to "caixin", "this part of the money returns to my pocket, which is equivalent to picking it up, and the mentality is different."

zhou lin did some calculations for caijing. "for example, if a person's current monthly commercial loan is 5,000 yuan, which accounts for 50% of his salary, if it is reduced to 4,000 yuan, not only is the absolute value reduced by 1,000 yuan, but the proportion of mortgage expenditure has become 40%, and the psychological feeling is different."

zhou lin believes that when the proportion of mortgage expenditure decreases, people will be more willing to spend money.

zhou lin's idea coincides with that of some economists. many economists interviewed by caijing said that lowering the interest rate of existing mortgage loans is an effective way to boost consumption.

according to the data from the national bureau of statistics, in the first seven months of 2024, the total retail sales of consumer goods increased by 3.5% year-on-year, down 0.2 percentage points from the previous month and 3.8 percentage points from the previous year. in terms of prices, the cpi (consumer price index) in july rose by 0.5% year-on-year, lower than the target of about 3% at the beginning of the year.

yin jianfeng, deputy director of the national finance and development laboratory, wrote in a recent report that "the cumulative year-on-year contribution rate of final consumption expenditure to gdp (gross domestic product) in the first half of the year fell from 83% at the end of 2023 to 61%, a new low since the first quarter of 2023, and the growth rate of total retail sales of consumer goods also slowed from 7% at the end of 2023 to 2%, both reflecting the sluggish consumption trend."

the political bureau of the cpc central committee held a meeting in late july to analyze and point out that the adverse effects of the current external environment changes have increased, domestic effective demand is insufficient, economic operations have diverged, key areas of risk are still many, and the transition from old to new drivers is painful. in the second half of the year, macroeconomic policies must continue to be more effective. among them, "expanding domestic demand with a focus on boosting consumption" is placed first.

at the subsequent work meeting for the second half of 2024, the central bank proposed to "shift focus more to benefiting people's livelihood and promoting consumption."

to what extent can lowering the interest rates on existing mortgage loans boost consumption?

in the "china regional financial operations report (2024)", the central bank reviewed the policy effects of lowering the interest rates on existing mortgage loans in 2023 in a special topic.

the central bank said that the policy reduces borrowers' interest expenses by about 170 billion yuan each year, and plays a significant role in reducing prepayments and boosting consumption growth.

according to data from the central bank, before the policy was implemented, the amount of early repayments of housing loans nationwide increased. in august 2023, the amount of early repayments of personal housing loans nationwide reached 432.45 billion yuan. after the policy was introduced on august 31, the average monthly early repayment amount of housing loans from september to december decreased by 10.5% compared with before the policy was introduced (august 2023).

the chongqing branch of the central bank conducted a sample survey of households that purchased houses after the interest rate cut on existing mortgage loans, and found that more than 30% of the residents surveyed planned to use the saved interest to increase consumption, including daily consumption, travel, children's education, etc. in the first quarter after the policy was implemented, both residents' consumer expenditure and total retail sales of consumer goods showed significant growth.

in terms of residents' consumption expenditure, in the fourth quarter of 2023, the per capita consumption expenditure of urban residents nationwide reached 8,679 yuan, an increase of 8.4% year-on-year, an increase of 12.3 percentage points over the same period last year. in terms of total retail sales of consumer goods, from october to december 2023, the growth rates were 7.6%, 10.1% and 7.4% respectively, all of which were the highest growth rates in the past three years.

lu ting said that in terms of boosting consumption, lowering the interest rate on existing mortgage loans is an effective policy option.according to his calculations, a 55bp-95bp reduction in the interest rate on existing mortgage loans will save mortgage borrowers rmb 210 billion to rmb 336 billion in interest payments each year. if the interest rate on existing mortgage loans is reduced by an average of 65bp, the reduction in interest payments will be approximately rmb 250 billion.

"as the real estate industry has not yet bottomed out, we continue to believe that the central bank may guide commercial banks to lower interest rates on existing mortgage loans in the coming months, with the extent of the rate cut being similar to that at the end of 2023," said lu ting.

(at the request of the interviewees, zhou lin and hu ying are pseudonyms in this article; intern tang min'an also contributed to this article; the author is a reporter for caijing; this article was published in caijing magazine on september 2, 2024)