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following the collapse of the housing market, our mortgage interest rates will probably also collapse soon, and banks will most likely have to cut losses in the future.

last friday, a short essay suggested that the central bank was considering allowing about 38 trillion yuan of existing mortgage loans to be converted into mortgages. this tuesday (september 4), another short essay suggested that the central bank was considering lowering the interest rates on everyone's first and second home loans in two steps in the next few weeks and early next year, reducing everyone's loan costs and easing banks' profit pressure. the interest rate cut will be about 80 basis points.

benefiting a wider range of people

although the news of banks lowering interest rates on existing mortgage loans had already fermented last week and no official has come out to refute or confirm the rumor, this week's short essay related to existing mortgage loans has made the news even more powerful.

the main reason is that the central bank previously lowered the interest rate on existing mortgage loans, but it only targeted first-time mortgage loans, and banks uniformly restricted the adjustment time to the bank's repricing date. after the initial adjustment, the lower limit of basis points in each city was different, and the range of basis point reduction was approximately 30bp to 45bp.

this resulted in a considerable number of property owners not enjoying the benefits of the reduction.

for example, some property owners in hefei have already followed the latest policy and their mortgage interest rate has been lowered to 3.85% on september 1. however, the mortgage interest rate of many property owners in hefei is still 4.2%. they need to wait until january 1 next year to enjoy the interest rate of 3.85%.

if the 80bp reduction becomes a reality, we will have to wait until january next year to enjoy 3.05%.

therefore, the news circulating this time is that the reduction will be in the next few weeks and before january next year, and it applies to both the first and second homes.not only has the timing been brought forward, the intensity and scope are also greater, and the degree of concentration may be even greater.

in short, if it is really implemented, the interest rate on existing mortgage loans will be lower, it will benefit more people, and the stimulus will be greater.

although it is still unclear whether it will actually be implemented and how it will be reduced is unknown, the huge interest rate gap between incremental and existing mortgage loans is a fact.

for example, shenzhen’s current mortgage interest rate for the first home is 3.4%.（LPR-45BP）, around july 2022, the interest rate for the first set of housing is lpr+30bp, and the interest rate for the second set of housing is lpr+60bp, with a difference of 75bp for the first set;

the current mortgage interest rate in beijing is 3.4% for the first mortgage.（LPR-45BP）in the past, most of the existing first-home mortgage rates were at 4.75%, a difference of 135bp;

the current mortgage interest rate in shanghai is 3.4% for the first mortgage.（LPR-45BP）, from 2021 to september 2023, the first mortgage rate will be lowered to lpr+35bp, a difference of 80bp;

the current mortgage interest rate in guangzhou is 3.1% for the first mortgage.(lpr-75bp, some banks lpr-95bp), the interest rate for the first existing mortgage loan before september 2023 is lpr, with a difference of 75bp/95bp.

it should be noted that this is just the interest rate difference between the added points, and does not include the extent to which the central bank has lowered the lpr in line with the market in the past two years.

the incremental mortgage interest rates in 30 major cities across the country are all concentrated at around 3.15% for the first mortgage. in order to snatch customers, many banks have even offered historically low interest rates.heading towards the 2-digitthe gap between existing and incremental mortgage interest rates is becoming more and more obvious.

(source: cric)

this not only hit the confidence of owners of existing mortgages, but also caused anxiety among many people who bought houses at high prices.

so even if it is not necessarily as rumored in the "small essay",the gap between incremental and existing mortgage interest rates has also reached a point where adjustment is needed.

the possibility of realizing "small composition"

these two short essays on the interest rates of existing mortgage loans are both strong monetary policies, both of which reduce the interest rates of existing mortgage loans, and have attracted enough attention from the market.some experts have already strongly called for "a significant reduction in the interest rate level of existing housing loans."

so if we want to lower it, which essay is more likely to be achieved?

it is speculated that the feasibility resistance of yesterday's (september 4) essay will be smaller.

on the one hand, the central bank has already carried out two rounds of mortgage interest rate cuts.there is already experience and market results in reducing existing mortgage loans.

in one round, the central bank issued the "notice on matters concerning reducing the interest rates on existing first home loans" in september last year, which clearly stated that from september 25, 2023, the interest rates on existing first home loans will be lowered, and individuals will apply to the banks. soon, various banks issued interest rate adjustment announcements one after another, clarifying the conditions and rules for adjusting the interest rates on existing personal housing loans.

the second round was in may this year, when the central bank issued the "notice of the people's bank of china on adjusting the commercial personal housing loan interest rate policy", directly canceling the national lower limit of the commercial personal housing loan interest rate policy for the first and second homes. immediately afterwards, guangzhou became the first first-tier city to cancel the lower limit of mortgage interest rates.

according to the people's bank of china's "china monetary policy implementation report for the fourth quarter of 2023", the first round of reductions in interest rates on existing mortgage loans worth more than 23 trillion yuan were completed.

judging from the market’s reaction, the effect of the adjustment is different from the expected direction.

because in may, the calls from owners of existing mortgages to "transfer loans", "repay loans in advance" and "decide to sell their houses" have increased.

according to the 2024 semi-annual report data of a-share listed banks, as of the end of the second quarter, the total balance of personal housing loans of the six major state-owned banks was 25.49 trillion yuan, a net decrease of 325.471 billion yuan compared with the beginning of the year, a shrinkage of more than 300 billion yuan, indicating that the trend of early repayment is still continuing.

nevertheless, following this path, at least the bank's system has not seen any excessive risk exposure for the time being.

because although the net profit of the six major state-owned banks has decreased compared with the same period last year, they have maintained a stable profit level as a whole. the total net profit of the six major state-owned banks in the first half of 2024 reached 683.388 billion yuan, and they announced interim dividends totaling about 204.8 billion yuan (of which postal savings bank of china plans to distribute a dividend of 14.6 billion yuan).

on the other hand, "mortgage transfer" is not as simple as imagined.

mortgage transfer involves the credit issues of existing home owners and property appraisal issues.

if the homeowner's mortgage is overdue, the bank that transfers the mortgage is equivalent to taking over an asset package with poor qualifications and poor repayment ability. for the bank that transfers the mortgage, it is equivalent to taking over the "inferior assets" of the original mortgage bank, and the risk is much greater than that of the original bank.

in this way, even if the mortgage can be transferred, the mortgage-transferring bank must re-evaluate the value of the owners' properties to reduce its own risk of taking over.

today, the property appraisal prices of banks in various cities have been adjusted significantly in line with the market, and some have shrunk significantly.

for example, in november last year, the securities times reported that bank appraisal prices for second-hand homes in shenzhen were generally declining.

the appraisal price is the bank's loan voucher. the higher the appraisal price, the more money can be loaned.when the appraisal value shrinks, the amount that owners can borrow after refinancing will also shrink.

therefore, in the context of shrinking market valuations,it is difficult to rule out the possibility that for a house originally purchased for 5 million, bank a would lend 4 million to it, and after the mortgage was transferred, bank b would re-evaluate the value of the house to 3 million.

today, the central bank's monetary policy department made a statement, which indirectly responded to recent market rumors:affected by factors such as the diversion of bank deposits to asset management products and the narrowing of banks' net interest margins, there are still certain constraints on further downward movement of deposit and lending rates.

how strong are the constraints?

be careful with your assumptions.

considering that the current total mortgage scale of the entire industry is about 38 trillion yuan, if the interest rate is cut by 80bp at one time, the banks' interest income will be reduced by about 304 billion yuan, accounting for about 12.77% of the banking industry's net profit of 2.38 trillion yuan in 2023, so the impact is still quite large.

our industry-wide deposits in the first half of the year were approximately 30.168 trillion yuan. if banks reduce deposit interest expenses by the same amount, the deposit interest rate cut will need to be around 10 basis points.

therefore, we have to lower our deposit interest rate by about ten basis points to offset this part of the bank’s profit loss.

this will further reduce the attractiveness of deposit interest rates for people to save money, allowing savings to flow out of banks and flow into other investment channels and consumer markets, indirectly promoting everyone's consumption and investment willingness.

since july this year, the six major state-owned banks and 12 joint-stock banks have lowered their deposit rates. in august, small and medium-sized banks across the country also followed suit in cutting interest rates. for example, shanghai bank’s one-year deposit rate dropped from 1.76% to 1.55%, and its five-year rate dropped from 2.55% to 1.8%.

in other words, if this essay becomes a reality, our deposit interest rate adjustment will most likely follow suit.

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the author's views do not represent the position of glodon