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recently, news about further lowering the interest rates on existing mortgage loans and allowing existing mortgage loans to be converted into mortgages has attracted much attention from the market and caused fluctuations in real estate and bank stock prices.

nomura china chief economist lu ting pointed out that the people's bank of china is likely to lower the interest rate on existing mortgage loans again, and the reduction may be around 40bp (or 0.4%).

the interest rate on existing mortgage loans may be reduced by 0.4%

lu ting believes that the current interest rate and currency problems facing china are not the high risk-free interest rate, but the mismatch between the supply of credit and the effective demand for credit. "in terms of monetary policy, the federal reserve has basically confirmed a rate cut in september. the question is whether it will be 25 points or 50 points. the probability is 25 points. against this background, the central bank is likely to cut interest rates slightly before the end of the second half of the year, but because we have cut interest rates many times before, the interest rate level is actually not high, so there is not much room for rate cuts."

therefore, in lu ting's view, the more critical thing at present is to cut interest rates from other angles, such as lowering the interest rates of existing mortgage loans, which can reduce residents' debt burden to a certain extent and should have a certain positive impact on consumption.

lu ting pointed out that based on the calculation of the existing mortgage loans of about 30 trillion yuan from 2015 to 2022, the average interest rate of existing mortgage loans is estimated to be around 5.2%. after the average interest rate of existing mortgage loans was reduced by 73bp, it is estimated that the current average interest rate of existing mortgage loans is around 4.5%.

statistics from the china real estate research institute show that in august 2024, the national average interest rate for first-home mortgages had fallen to around 3.25%, and the average interest rate for second-home mortgages was 3.6%.

compared with the new mortgage rates, the current existing mortgage rates are still relatively high. lu ting said that it is estimated that the current existing mortgage rates are 100bp higher than the new mortgage rates. he believes that the new round of existing mortgage loan rates may drop by about 40bp.

the average drop in the last round of existing mortgage rates was 0.73%

since the second half of last year, the market has been calling for a rate cut on existing mortgage loans. against this backdrop, in august 2023, the people's bank of china and the state financial regulatory commission issued the "notice on reducing the interest rates on existing first home loans" (hereinafter referred to as the "notice").

according to the notice, borrowers of existing commercial personal housing loans for first homes can apply to the lending financial institution to have the financial institution issue a new loan to replace the existing commercial personal housing loans for first homes. borrowers of existing commercial personal housing loans for first homes can also apply to the lending financial institution to negotiate a change in the interest rate level agreed in the contract.

the "china regional financial operations report (2024)" (hereinafter referred to as the "report") recently released by the people's bank of china pointed out that since the implementation of the policy, the interest rates of more than 23 trillion yuan of existing mortgage loans have been lowered, with an average decrease of 0.73 percentage points, reducing borrowers' interest expenses by about 170 billion yuan each year, which has played a significant role in reducing early loan repayments and stimulating consumption growth.

since the beginning of the year, with the continuous decline of lpr (loan market quotation rate) for more than 5 years, the gap between the interest rate of existing mortgage loans and the interest rate of new mortgage loans has continued to widen. a retail business person of a joint-stock bank revealed to the reporter of china business news that after the mortgage interest rate was lowered last year, the number of customers with existing houses making early repayments surged. after the regulator issued a notice on reducing the interest rate of existing first-home mortgage loans in august last year, the bank also made certain adjustments based on the customer's application; however, this year, with the repeated reductions in the interest rates of the first and second homes, the interest rate gap between new and old mortgages has further widened, and customers have been more willing to repay early in recent months.

combined with the lack of domestic consumption power, the market has further increased its calls for a reduction in the interest rates of existing mortgage loans. dongwu securities also pointed out in its latest research report that although the conditions for residents to buy houses have been relaxed after the "may 17" new policy, the overall willingness to buy houses has not improved significantly. subsequent policy deployment needs to make more efforts in real estate acquisition and storage, provide more support in acquiring existing housing and increasing the supply of affordable housing, and increase financial support for housing rental. at the same time, it can further reduce the interest rates of existing mortgage loans, reduce the pressure on residents, and promote the gradual return of the real estate market to healthy development.

the people's bank of china also pointed out in the report that the reduction in the interest rate of existing mortgage loans directly reduced the interest expenses of existing mortgage customers and increased the disposable income of residents, which is conducive to improving residents' willingness and consumption capacity to consume and promoting consumption growth. in the next step, financial institutions will be urged to continue to implement the results of reducing the interest rate of existing mortgage loans, rationalize the relationship between the interest rates of incremental and existing mortgage loans, effectively reduce the interest burden of residents, release the public's investment and consumption motivation, stimulate market vitality, and promote the continued recovery of the economy.

(editor: zhu ziyun, reviewer: he shasha, proofreader: zhang guogang)