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when and how the interest rates on existing mortgage loans will be lowered is highly anticipated.

recently, there is news that the government is considering further lowering the interest rates of existing mortgage loans, allowing the existing mortgage loans of up to 38 trillion yuan to seek mortgage transfers, in order to reduce the debt pressure of home buyers and boost consumption. according to the relevant plan, existing mortgage customers can renegotiate loan terms with existing lenders; or refinance with other banks to achieve mortgage transfers.

so far, the central bank and the state financial supervision and administration bureau have not commented on this. china real estate news sent an interview letter to the central bank, but no reply was received as of press time.

regarding the reduction in interest rates on existing mortgage loans, china merchants bank president wang liang responded at the mid-term performance meeting on september 2, saying that china merchants bank had only seen the information in the media and had not received any opinions from the macro-mortgage management department, the people's bank of china or the state administration of financial supervision and administration, nor had it sought the opinions of any banks.

he believes that "if this policy is introduced, it will have a certain negative impact on the existing mortgage interest rates of the banking industry; the macro-management department will do sufficient research and study before introducing such a policy."

the call for lowering the interest rate on existing mortgage loans to "reduce the burden" is growing

as early as 2023, the central bank had expressed its willingness to encourage commercial banks to lower interest rates on existing mortgage loans.

in august 2023, the central bank and the state financial supervision and administration bureau issued the "notice on reducing the interest rates of existing first home loans", which adjusted the interest rates of two types of housing loans: first, first home mortgages issued by financial institutions and contracts signed but not issued before august 31, 2023; second, homes that did not meet the requirements of first homes at the time of purchase, but were newly recognized as first homes due to policy adjustments. however, the interest rates of existing second home loans are not within the scope of this reduction.

under this policy, the interest rates of existing mortgage loans were uniformly adjusted from september to october last year. citic securities research said that from the results of the adjustment, according to the people's bank of china's monetary policy implementation report for the fourth quarter of 2023, the interest rates of more than 23 trillion yuan of existing mortgage loans have been lowered, and the weighted average interest rate after adjustment is 4.27%, with an average decrease of 73 basis points, reducing borrowers' interest expenses by about 170 billion yuan each year, benefiting 53.25 million households and about 160 million people. this part of interest expenses accounts for about 2.4% of the total operating income of commercial banks in 2023.

"considering that most mortgages experienced repricing on january 1 this year, a small number of mortgages experienced repricing from february to august this year, and that existing high-priced mortgages have been repaid in advance since the beginning of this year, we estimate that the current weighted average interest rate of existing mortgage loans will be around 3.9% to 4%," said citic securities research.

what is the current level of new mortgage interest rates? according to the "china monetary policy implementation report for the second quarter of 2024" released by the central bank, the national interest rate for new personal housing loans was 3.45% in june 2024. this interest rate is still falling.

according to the centaline property research institute, the average interest rate for first home loans nationwide will be around 3.25% in august 2024, and the average interest rate for second home loans will be around 3.6%. the lowest interest rate for first home loans in guangzhou is already 2.89%.

this means that there is still a gap of about 80 basis points between the existing mortgage interest rate and the latest mortgage interest rate. under the high interest rate gap, many lenders aim to repay the loan early. "repaying the loan early is really addictive because you can save a lot of interest." said a home buyer.

the direct impact is that the bank's mortgage loan balance has shrunk significantly. the "2024 second quarter financial institution loan target statistical report" released by the central bank shows 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%. in the first half of this year, the balance of personal housing loans decreased by 380 billion yuan. among them, the mortgage loan balance of the six major state-owned commercial banks decreased by 311.9 billion yuan.

many banks attributed the decline in personal housing loan balances to adjustments in the real estate market and an increase in early loan repayments. guotai junan securities research shows that in april 2024, the resident early repayment rate index reached a historical high of 37%, reflecting a significant increase in residents' early loan repayments.

some buyers, under pressure from falling house prices and high mortgage rates, have no choice but to sell their houses, "because they are losing money every day, it's really not worth it." this has invisibly pushed up the number of second-hand houses listed. lowering the interest rates on existing mortgages has become an urgent matter.

"i plan to wait and see whether the interest rate on existing mortgage loans can be lowered before deciding whether to repay the loan in advance." mr. zhang, who had planned to repay another mortgage, said that in order to repay the loan in advance, he would tighten his belt. if the interest rate can really be lowered, he can use the money saved for consumption.

interest rates should be market-based

for banks, between lowering interest rates and reducing profits to a certain extent and losing credit assets, the former seems to be more desirable.

"interest rates should be market-based, and a reduction in the interest rates on existing mortgages is the natural result. on the contrary, if interest rates rise in the future, the interest rates on existing mortgages will also rise. now banks are not changing the interest rates on existing mortgages because of policy restrictions," said cheng feng, senior housing finance economist.

the so-called interest rate marketization is the process of giving the decision-making power over interest rates to the market and allowing market players to independently decide on interest rates.

cheng feng said that interest rates abroad are market-based. if interest rates fall, existing mortgage customers can renegotiate loan terms with existing lenders or transfer mortgages with other banks. transferring mortgages is equivalent to replacing the original interest rate with a new one, but current domestic policies do not allow this. "from the perspective of the country, which is people-centered, the possibility of a drop in existing mortgage interest rates is relatively high."

what is the mortgage transfer of existing mortgage loans?

"mortgage transfer" refers to a borrower who has already applied for a mortgage loan from a bank and requests the original lending bank to change the loan elements (including interest rate, amount, mortgage rate, borrower, etc.), or to transfer the existing mortgage loan to another bank and sign a contract based on the latest loan elements.

before september 2007, there were no explicit restrictions on mortgage transfer policies at the regulatory level. at that time, many banks launched mortgage transfer business, accompanied by the "additional mortgage upon house price revaluation" business.

since september 2007, the central bank has guided the cancellation of mortgage transfer and mortgage loan business. in september 2007, the central bank and the former china banking regulatory commission issued the "notice on strengthening commercial real estate credit management", requiring "commercial banks shall not issue housing mortgage loans with loan amounts that fluctuate with the assessed value of the property and do not specify the purpose; for mortgaged properties, before the buyer has fully repaid the loan, they shall not use the re-assessed net value as collateral for additional loans."

in december 2007, liu shiyu, then deputy governor of the central bank, said at a special meeting on strengthening commercial real estate credit management that "re-mortgage and mortgage loans must be resolutely cancelled. re-mortgage housing loans without designated purposes and real transactions must not be issued." he believed that the bank's re-mortgage business had become a speculative tool for real estate speculators, who used the funds to buy multiple houses or enter the stock market, thus exacerbating the bubbles in the property and stock markets.

on august 26, 2019, the people's bank of china issued announcement no. 16 [2019], once again emphasizing that it is strictly prohibited to provide personal housing loan "mortgage transfer" and "mortgage addition" services.

the supply and demand relationship in the current real estate market has undergone fundamental changes. it may be time to withdraw some restrictive administrative measures.

"it is possible to refinance or reduce existing mortgages." yan meizhi, head of financial industry research at ubs greater china, believes that we estimate that the interest rate of existing mortgages is about 4.1%, but the interest rate of newly issued mortgages in first-tier cities is less than 3%, and the interest rate difference will cause complaints from mortgage borrowers. at the same time, the government also hopes to encourage consumption, so there is a possibility that the interest rate of existing mortgages will be lowered.

"it is possible that the interest rate of existing mortgage loans will be lowered, but 'mortgage transfer' may not be allowed. it is more likely to reduce the existing mortgage markup." the bank research team of zheshang securities believes that "mortgage transfer" is equivalent to residents who originally took out loans from bank a, and can replace their original loans with loans from bank b at the latest interest rate. it involves cross-bank cooperation and the process is complicated. moreover, in the context of weak mortgage demand, it may cause vicious competition among banks after it is liberalized.

the most direct impact of adjusting the interest rate of existing mortgage loans or converting them into mortgages is on the interest rate spread and profits of banks.

cicc predicts that if the new round of existing mortgage rate adjustment is reduced by an average of 60 basis points, it is estimated that the reduction in existing mortgage rates will affect the bank's net interest margin by 7 basis points. however, the current reduction in deposit rates can offset the pressure on interest margins caused by the reduction in existing mortgage rates. considering that the adjustment space for existing mortgage rates in this round may be greater than in 2023, the adjustment range of bank liabilities should be at least around 15 basis points. if the liability cost is adjusted in place, it is expected that the overall effect of the adjustment of existing mortgage rates on bank interest margins will be neutral.