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cai yuekun, reporter of economic observer "i borrowed a 300,000 yuan credit loan from the bank and repaid part of my mortgage in advance, which reduced the interest rate a lot." on september 19, mr. wang from xi'an shared his mortgage "burden reduction" process with the economic observer.

in 2019, mr. wang's commercial housing loan interest rate was 5.25%. this was a relatively high interest rate at the time. as time went on, bank loan interest rates continued to fall, and in comparison, his mortgage interest rate seemed to be getting higher and higher. in 2024, mr. wang noticed that many banks began to launch credit loan products with interest rates of around 3%.

mr. wang began to consider whether he should take advantage of the current lower interest rate environment and repay his mortgage early to reduce his long-term financial burden.

there are many ordinary homebuyers who have similar experiences as mr. wang. guotai junan research report pointed out that since february 2024, the resident prepayment rate index (cpr) released by the national interbank funding center has accelerated upward, reaching a historical high of 37% in april (excluding the technical adjustment in october 2023), and has reached the previous historical high (june 2009), reflecting a significant increase in residents' early loan repayment behavior.

recently, the market has beenexisting mortgage interest ratesthis is mainly because the interest rates of existing mortgage loans are generally higher than those of new loans, which many home buyers feel is unfair.

a research report from cric research center shows that the average loan interest rate for the first home in 30 key cities is 3.21%, the average loan interest rate for the second home is 3.53%, and the average interest rate for existing mortgages is about 4%.

gf securities believes that due to the significant widening of the interest rate spread between newly issued loans and existing loans, coupled with the low return on investment in residents' financial assets, the phenomenon of residents repaying their loans in advance may increase again in 2024.

behind the call

homebuyers who are burdened with higher existing mortgage interest rates are eagerly looking forward to a reduction in mortgage interest rates.

faced with credit loan products with more favorable interest rates in the financial market in 2024, mr. wang began to consider a new financial strategy.

he plans to take advantage of the current low loan interest rates and use other loan products to settle his remaining nearly 500,000 yuan of high-interest mortgage in advance. such a strategy may save him a lot of long-term interest expenses and also reduce his monthly repayment pressure.

recently, mr. wang has been paying close attention to the market dynamics regarding the possible reduction in the interest rate of existing mortgage loans. he hopes that this dynamic will come true as soon as possible. in this way, he will not have to consider using a credit loan to repay the remaining nearly 500,000 yuan mortgage in advance.

according to the research report of gf securities, after the lpr (loan market benchmark rate) reform in 2019, the mortgage interest rate in my country is priced on the basis of the 5-year lpr plus a point. the 5-year lpr will be adjusted with changes in monetary policy, but the increase will not change once it is determined. because house prices are easy to rise and difficult to fall before 2022, financial policies are tight for most of the time, and personal housing loan interest rates mostly have a relatively high increase (roughly estimated that about two-thirds of the mortgage interest rate increase exceeds 15 basis points). therefore, although the 5-year lpr interest rate has continued to decline in recent years, the average interest rate of existing mortgages is still high due to the high increase.

gf securities said that if the interest rates of existing mortgage loans are adjusted this time, logically there may be two ways: one is similar to the second half of 2023, where banks will replace new loans or negotiate new interest rates and adjust the spread of existing mortgage interest rates; the other is to transfer mortgages, that is, borrowers who have already applied for personal housing loans from banks can apply to the original lending bank to extend the loan term or sell or transfer the personal housing mortgaged to the bank to a third party.

debon securities said that since the second half of 2023, the balance of personal housing loans has entered a downward channel, and residents have a strong willingness to repay loans in advance. the year-on-year growth rate began to turn negative in june 2023. as of the end of the second quarter of this year, the balance of personal housing loans fell by 2.1% year-on-year, the largest quarterly decline since 2020. the downward trend in the balance of housing loans means the intensification of the phenomenon of early repayment, which confirms the increase in the central level of the early repayment rate. the possible reason is that the downward trend of the incremental mortgage interest rate is greater than the downward trend of the existing mortgage interest rate, and residents have a strong willingness to repay their loans in advance. from this perspective, the downward trend of the existing mortgage interest rate is necessary and reasonable.

the inversion phenomenon is getting worse

another reason behind the call for a reduction in existing mortgage interest rates is that residentsreturn on assetsthere is a clear inverted trend with debt costs.

on september 18, the yield of the active 10-year treasury bond "24 interest-bearing treasury bond 11" in the interbank market was 2.03%, the lowest since the end of april 2002.

since 2024, affected by factors such as "asset shortage", my country's medium- and long-term bond yields have dropped significantly. the 10-year treasury bond yield dropped from 2.56% at the beginning of the year to an intraday low of 2.02% on september 19, which attracted widespread attention from the market.

data from debon securities shows that since 2018, the weighted asset yield of residents has entered a downward channel. it is estimated that by june 2024, the yield level has dropped to a historical low of about 3%. the corresponding weighted debt cost has fallen relatively slowly. since the end of 2019, the asset yield of residents and the debt cost have shown a clear "inversion", and the current degree of inversion is close to 70 basis points. under this circumstance, from the most basic perspective of inter-period financial optimization, cash repayment of debts is a very rational choice.

debon securities believes that the asset yield and liability cost of residents continue to be inverted, and debt reduction has gradually transitioned from a rational financial choice to an irrational sense of security and risk aversion demand. the above is only financial logic. from recent exchanges with the market, people will have a strong sense of insecurity simply because of a large amount of debt. the behavior of repaying mortgages in advance may have risen from a simple financial calculation to a debt reduction and risk aversion demand caused by a lack of security in future income.

in addition, since 2024, against the backdrop of low real estate market prosperity, weak residents' leverage, and the cancellation of the lower limit of mortgage interest rates, the decline in incremental mortgage interest rates has accelerated, and the interest rate spread with existing mortgage interest rates has widened again.

according to statistics from the people's bank of china, the weighted average interest rate of existing housing loans was 4.29% at the end of september 2023. due to the 10 basis points reduction in the 5-year lpr in 2023 and the repricing of existing housing loans, the weighted average interest rate of existing housing loans dropped to 4.19% in 2024; the weighted average interest rate of incremental housing loans in the second quarter of 2024 was 3.45%, and the interest rate spread between incremental and existing housing loans widened again to 74 basis points.

gf securities believes that in this context, residents' willingness to repay loans in advance has increased. in the first half of 2024, the balance of personal housing loans shrank month-on-month.

how much room is there for reduction?

the adjustment space for existing mortgage interest rates is an issue of great concern to the majority of mortgage repayers.

first, from the policy perspective, on august 31, 2023, the people's bank of china and the state financial supervision and administration bureau jointly issued the "notice on matters concerning reducing the interest rates on existing first home loans", which clearly stated that eligible existing first home borrowers can negotiate with the lending financial institution to lower the interest rate.

on may 17, 2024, the people's bank of china and the state financial regulatory administration jointly issued a series of major favorable policies for the real estate market, including canceling the lower limit of commercial personal housing loan interest rates for the first and second homes, reducing the minimum down payment ratio for residents' home purchases to 15%, and lowering the interest rate on personal housing provident fund loans.

secondly, in terms of magnitude, debon securities research report pointed out that the interest rate on existing mortgage loans may be reduced by around 60 to 80 basis points.

debon securities pointed out that according to the 2024 china regional financial operation report, after the real estate policy was relaxed in august 2023, 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%, a decrease of 73 basis points. as of june 2024, the weighted average interest rate of personal housing loans of financial institutions was 3.45%. taking this as a representative of the incremental mortgage interest rate, there is still 82 basis points of compression space between the existing and incremental interest rates. on the other hand, judging from the data of listed banks that disclose medium- and long-term loan yields, the current average level is 4.17%, and there is still about 70 basis points of room to reduce the current loan interest rate level of 3.45%.

if the interest rate on existing mortgage loans is lowered, how will it affect the asset interest rate?

gf securities believes that if the interest rates of existing mortgage loans are adjusted, both equity and bond assets will benefit. for bond assets, since this process may be accompanied by interest rate cuts/deposit rate reductions, this is conducive to the downward shift of the interest rate curve; for equity assets, firstly, if the risk-free interest rate center moves downward, it will help support valuations; secondly, the adjustment of the interest rates of existing mortgage loans is an important signal of the implementation of countercyclical policies, which will help stabilize risk appetite; thirdly, the adjustment of the interest rates of existing mortgage loans will help stabilize consumption, which is the main shortcoming of the current economy, and thus help repair fundamental expectations.