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the topic of reducing the interest rate of existing mortgage loans, which concerns 150 million users, has attracted great attention from the market. on september 24, at a press conference held by the state council information office in the morning, pan gongsheng, governor of the people's bank of china, made a major statement that the interest rate of existing mortgage loans will be reduced to around the interest rate of new mortgage loans, and the average reduction is expected to be around 0.5 percentage points. at the same time, the minimum down payment ratio for mortgage loans for the first and second homes will be unified, and the minimum down payment ratio for second mortgage loans at the national level will be reduced from 25% to 15%.

if a loan of 1 million yuan is taken for 30 years, a reduction of 0.5 percentage points, or 50 basis points, means that the monthly payment for each existing mortgage buyer will be reduced by approximately 280 yuan, and the interest expenditure can be reduced by 100,000 yuan in 30 years.

1 million yuan can reduce interest by 100,000 yuan in 30 years

the announcement of the two major mortgage policies has stirred up a lot of excitement in the market. what has attracted the attention of the whole nation is that the further reduction in the interest rate of existing mortgage loans will save a lot of money for home buyers.

according to the statement, lowering the interest rate on existing mortgages to around the interest rate on newly issued mortgages means that banks will continue to reduce the mortgage costs for existing home buyers in accordance with the deployment of the people's bank of china in the near future.

first of all, how do we understand the meaning of an average drop of about 0.5 percentage points? according to statistics from centaline property research institute, the current average interest rate for existing mortgages is about 3.92%, while the average interest rate for new mortgages is about 3.3%, which means that the difference between the average interest rate for existing mortgages and new mortgages is about 60 basis points.

if it is reduced by another 50 basis points, it means that the average interest rate gap between existing mortgage loans and new mortgage loans will be only 10-15 basis points, which will be a huge benefit for home buyers.

how much can individuals save after the interest rate cut? zhang dawei, chief analyst of centaline property, pointed out that if a 1 million yuan loan is taken out for 30 years, a 50 basis point reduction means that the monthly payment of each existing mortgage buyer will be reduced by about 280 yuan, and the interest expenditure can be reduced by 100,000 yuan in 30 years.

at the meeting, pan gongsheng mentioned that banks' reduction of interest rates on existing mortgage loans will help further reduce borrowers' mortgage interest expenses. it is estimated that this policy will benefit 50 million households and 150 million people, reducing the total interest expenses of households by about 150 billion yuan on average each year. this will help promote the expansion of consumption and investment, and will also help reduce early loan repayments. at the same time, it can also reduce the space for illegal replacement of existing mortgages, protect the legitimate rights and interests of financial consumers, and maintain the stable and healthy development of the real estate market.

ma hong, a senior researcher at guangkai chief industrial research institute, also said that the most direct positive effect of lowering the interest rates on existing mortgage loans is to reduce the debt repayment pressure of existing mortgage holders, reduce the demand for early repayment, and may encourage these residents to increase investment or consumption expenditures in other areas.

"lowering the interest rate on existing mortgage loans is the most popular topic this year. this reduction in the interest rate on existing mortgage loans will actually reduce the monthly payment burden for every household that has already purchased a house." yan yuejin, deputy director of the shanghai e-house real estate research institute, further stated that the combined reduction in lpr in recent years and the interest rate on existing mortgage loans last year have actually significantly reduced the burden and pressure of monthly payments. if we consider that the lpr for terms of more than five years has decreased by 95 basis points since 2020, and then add the 50 basis points this time, then the interest rate on existing mortgage loans in the past four years can actually be reduced by about 145 basis points, which is a very rare policy in history to reduce existing mortgage loans.

if calculated in this way, taking into account the housing loan policies of the past four years, the monthly payment of a mortgage loan with a loan principal of 1 million yuan and equal principal and interest for 30 years has been reduced by 870 yuan. in other words, for a family with a loan of 1 million yuan, they can pay about 870 yuan less each month, which is a real favorable policy.

"on the demand side, on the basis of the lpr reduction, reducing the markup of existing mortgage rates on the benchmark rate will significantly improve the debt costs of home buyers and reduce the pressure of early repayment of loans," said ming ming, chief economist of citic securities.

the reduction in down payment mainly affects first-tier cities such as beijing, shanghai and shenzhen

regarding the down payment ratio, a relaxed down payment ratio guidance has also been implemented for second homes or improved housing.

specifically, although the down payment ratio for second homes has been lowered in the past, it was still slightly higher than that for first homes. however, this time it has been lowered to 15%, which, in the eyes of the industry, will help lower the down payment ratio and purchase threshold for second homes or improved housing.

yan yuejin said that according to a simple calculation, if a family subscribes to a second home with a total price of 2 million yuan, the down payment would have been 500,000 yuan in the past, but now it has been reduced to 300,000 yuan, a direct reduction of 200,000 yuan, which naturally activates the demand for improvement or house changing.

"this time, the default is consistent with the first-time home standard, which is actually a greater effort to reduce the demand for improved housing and enhance purchasing power." yan yuejin said that the people's bank of china's policy this time covers existing housing loans and new home purchase demand, with a wide coverage and great benefits. it has played a positive role in reducing housing costs and continuously enhancing confidence in buying homes.

"the new policy provides more preferential housing purchase policies for home buyers. it hopes to better meet rigid and improved housing needs by lowering the threshold for home purchases and reducing home purchase costs." regarding this policy statement, ma hong also pointed out that the people's bank of china's adjustment of the interest rate on existing housing loans and the down payment ratio for second homes has released a positive signal for stabilizing the real estate market in the form of a "combination punch" of policies.

as of the end of august 2024, the national commercial housing sales area has dropped by 18% year-on-year, real estate investment has dropped by 10.2% year-on-year, and the inventory-to-sales ratio of commercial housing is 6.1. the continued decline in the growth rate of real estate sales and investment, and the relatively high inventory of commercial housing, indicate that the downward pressure on the real estate market is relatively large, which also forms a relatively obvious drag on the macro economy.

ma hong believes that the new policy will help with the sales of commercial housing across the country, and is expected to accelerate the domestic commercial housing market towards a balance between supply and demand, thereby promoting the stable and healthy development of the real estate market.

however, zhang dawei pointed out that from the perspective of the current market, this policy mainly affects first-tier cities, because from a national perspective, the dividing line between first and second homes in most cities has become increasingly blurred. only in first-tier cities does the down payment for second homes still significantly exceed that for first homes. it is expected that this will have a certain positive impact on first-tier cities such as beijing, shanghai and shenzhen.

in addition, the minimum down payment ratio for housing loans will be unified to 15%. pan gongsheng also explained two points. each local government can formulate policies based on the city and independently determine whether to adopt differentiated arrangements and determine the minimum down payment ratio lower limit within its jurisdiction. the real estate market conditions between different cities and regions vary greatly. local governments can adopt differentiated arrangements and determine the minimum down payment ratio lower limit within their jurisdiction based on the national bottom line.

in addition, commercial banks can negotiate with customers to determine the specific down payment ratio based on their risk profile and willingness. "because 15% is only a minimum down payment ratio, commercial banks may require a higher down payment ratio based on their risk assessment of customers. some customers may say that they have money and can pay a 30% down payment ratio. this is a market-based negotiation between commercial banks and individuals," said pan gongsheng.

guide lpr and deposit rates to decline simultaneously

in the past two years, there have been continuous favorable policies surrounding the real estate sector. the people's bank of china has continuously improved its macro-prudential policy on real estate finance, adopted comprehensive measures from both the supply and demand sides, and repeatedly lowered the minimum down payment ratio for personal housing loans, reduced loan interest rates, abolished the lower limit of interest rate policies, established a series of policies such as affordable housing re-lending to support the acquisition of existing commercial housing.

looking back, the last time the people's bank of china comprehensively adjusted the interest rates on existing mortgages was in august 2023, and the minimum down payment ratio for second homes was lowered in may this year.

at that time, after the adjustment of the interest rate of existing first-home mortgage loans was officially implemented, homebuyers in many places posted the adjusted interest rate information, saving hundreds or even thousands of yuan in monthly payments. at the same time as the batch reduction, some banks also launched the recognition application function for "second home to first home", and homebuyers can upload their materials to handle it. it can be seen that after the existing mortgage interest rate was lowered, the burden on homebuyers was significantly reduced.

regarding this policy statement, ma hong said that after this statement, it is expected that commercial banks across the country will quickly follow the people’s bank of china’s policies and lower the interest rates on existing personal housing mortgage loans.

according to industry insiders, the reduction in the interest rate of existing mortgage loans is not only beneficial to the borrowing group. if the reduction in mortgage interest rates can significantly reduce the phenomenon of early loan repayment, it may not be a bad thing for banks. compared with early loan repayment, the impact of reducing the interest rate of existing mortgage loans on banks is much smaller.

it is worth noting that in order to help banks stabilize their net interest margins, pan gongsheng also stated, "at the same time, guide the loan market benchmark interest rate and deposit interest rate to decline simultaneously to maintain the stability of the net interest margin of commercial banks."

in general, this policy is oriented towards stimulating consumption and preventing risks. yan yuejin added that whether you have already purchased a house or are buying a new one, you can reduce financial pressure and reduce costs. in particular, the interest rates of existing mortgage loans have been high in the past, and the risk of monthly payment defaults has increased, and there will also be incidents such as early repayments. this policy will help stabilize existing mortgage loans and increase the demand for new mortgage loans. for banks, it will also help prevent risks, expand business, and truly promote the healthy development of mortgage business.

zhou maohua, a macro researcher at the financial market department of everbright bank, said that the people's bank of china has lowered the interest rate of existing mortgage loans and significantly reduced the down payment ratio for home purchases, which has unprecedentedly stabilized the property market, demonstrating the people's bank of china's determination to stabilize the property market and will have multiple positive effects. on the one hand, by guiding financial institutions to reasonably reduce the interest rate of existing mortgage loans, the spread between new and old mortgage loans can be avoided, and the banking business can be better stabilized; at the same time, it will help reduce the monthly mortgage interest expenses of existing owners and release the comprehensive effect of consumption; in addition, a significant reduction in the down payment ratio for home purchases will help lower the threshold for home purchases and boost demand for rigid and improved housing. positive policies will help stabilize confidence in the recovery of the property market, strengthen the momentum of the recovery of the domestic property market and consumption, and the economy is expected to recover faster.

beijing business daily reporter liu sihong