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as new mortgage rates continue to decline, the interest rate spread between existing and new mortgage rates has widened, making the market expect to reduce existing mortgage rates to stabilize housing consumption expectations. we believe that if this adjustment is implemented, while reducing the repayment pressure of borrowers and curbing the trend of early loan repayment, it will also increase the pressure on bank interest margins. therefore, it is necessary to lower deposit rates to cooperate, which may drive the broad spectrum interest rate center, including treasury bond rates, to continue to "step down".

▍the topic of lowering interest rates on existing mortgage loans has heated up again.

since the beginning of this year, with the release of the lower limit of housing loan interest rates and the weak growth of housing loans, mortgage interest rates have fallen rapidly. on august 30, 2024, glodon quoted bloomberg as saying that relevant departments are considering further reducing the interest rates of existing mortgages. since then, the discussion on reducing the interest rates of existing mortgages has become more and more heated.

▍a historical review of adjustments to existing mortgage interest rates.

there is actually a precedent for lowering the interest rates on existing mortgage loans. in 2008, the central bank lowered the lower limit of personal housing loan interest rates. in order to compete for existing mortgage customers, major banks have launched preferential interest rate plans. 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", adjusting the interest rates of two types of housing loans. according to the central bank, 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%, reducing borrowers' interest expenses by about 170 billion yuan each year.

▍the possibility and impact of a reduction in existing mortgage interest rates.

behind the topic of lowering the interest rates on existing mortgage loans, what is reflected is the contradiction between the decline in the yield on the asset side of residents and the rising costs on the liability side. in this context, lowering the interest rates on existing mortgage loans will help reduce the burden of housing consumption on residents, alleviate the problem of early loan repayment, and avoid a substantial reduction in the balance sheet of the resident sector. however, from the perspective of banks, the operating pressure brought about by lowering the interest rates on existing mortgage loans cannot be ignored. according to our calculations, if the existing mortgage loans are lowered by 50-100bps, the annual interest income of commercial banks may decrease by 100-300 billion yuan, corresponding to a decline in the interest rate spread of 3-9bps. if the interest rates on existing mortgage loans are lowered, the income on the asset side of banks will be reduced, and it is expected that deposit rates will need to be adjusted accordingly, and it is possible to drive the broad spectrum yield downward.

▍summary and outlook:

as new mortgage rates continue to decline, the interest rate spread between existing and new mortgage rates has widened, making the market expect to reduce existing mortgage rates to stabilize housing consumption expectations. we believe that if this adjustment is implemented, while reducing the repayment pressure of borrowers and curbing the trend of early loan repayment, it will also increase the pressure on bank interest margins. therefore, it is necessary to lower deposit rates to cooperate, which may drive the broad spectrum interest rate center, including treasury bond rates, to continue to "step down".

▍risk factors:

monetary policy is not as good as expected; economic recovery is not as good as expected; liquidity tightens beyond expectations, etc.

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