what are the problems with the current pricing mechanism for mortgage interest rates? how to improve? central bank’s response →
2024-09-29
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today (september 29), the people's bank of china issued an announcement that it will guide existing mortgage interest rates to be reduced in batches. the market interest rate pricing self-discipline mechanism also issued an initiative to reduce existing mortgage interest rates in batches.
the relevant person in charge of the people's bank of china answered reporters' questions on issues related to improving the interest rate pricing mechanism for commercial personal housing loans.
what is the background to this announcement?
answer: in order to clear the transmission channels of monetary policy and promote the reduction of financing costs for the real economy, the people's bank of china reformed and improved the loan market quoted rate (lpr) formation mechanism in august 2019 to promote loan interest rates to reflect changes in market interest rates in a timely manner.
in the process of reforming and improving the lpr formation mechanism, we fully considered the characteristics of commercial personal housing loans (hereinafter referred to as housing loans), such as wide coverage, long term, and high public attention, and issued announcement no. 16 [2019] of the people's bank of china, clarifying the mortgage interest rate is formed by adding points on the basis of lpr, so that the interest rate of mortgage loans with a longer contract period can be adjusted with market interest rates, which plays an important role in promoting the marketization of mortgage interest rates and promoting the stable and healthy development of the real estate market.
however, as the market-oriented reform of interest rates continues to deepen and the supply and demand relationship in the real estate market undergoes major changes, the current mortgage interest rate pricing mechanism has also exposed some shortcomings. the people have expressed strong reactions and urgently need adjustment and optimization.
in order to implement the spirit of the political bureau meeting of the cpc central committee and respond to the concerns of the masses,the people's bank of china issued announcement no. 11 [2024] to improve the interest rate pricing mechanism for commercial personal housing loans and promote the reduction of existing housing loan interest rates.
what are the problems with the current pricing mechanism for mortgage interest rates? how to improve?
answer: according to the contract, the additional points on the lpr of the mortgage loan are fixed during the contract period. mortgage contract terms are generally long, and the fixed point margin cannot reflect changes in borrower credit, market supply and demand and other factors. once the market situation changes, it is easy to cause the spread between new and old mortgages to widen. as the market-oriented reform of interest rates continues to deepen, it is necessary to optimize the system design and promote commercial banks and borrowers to change their contracts in an appropriate manner.
in august 2023, in order to fully respond to the demands of the masses and in line with the principle of urgency, the people's bank of china, together with the state administration of financial supervision, guided commercial banks to adjust existing mortgage interest rates in batches by negotiating changes to contract interest rates and other methods, and achieved good results.
however, because the point increase rate cannot be adjusted independently under the current mortgage interest rate pricing mechanism, the contradiction between the interest rates of new and old mortgages has once again accumulated and expanded recently.commercial banks will coordinate through industry self-discipline to carry out another batch adjustment of eligible existing housing loans, lowering the interest rate to around the national new housing loan interest rate.
however, the above-mentioned methods treat the symptoms rather than the root cause. to fundamentally solve the problem of interest rate differentials between new and old mortgages, we need to deepen the market-oriented reform of interest rates, while maintaining the seriousness of contracts, break down institutional obstacles, and promote market-based approaches for both commercial banks and borrowers. the principle of independent negotiation and dynamic adjustment.
what are the main contents of adjustments and optimizations in this announcement?
answer: announcement no. 11 of the people's bank of china [2024] mainly carries out the following optimizations: first, it is allowed to change the point range of the mortgage interest rate based on the lpr. borrowers and borrowers can adjust the point addition range through negotiation, contract changes, etc. to more accurately reflect changes in market supply and demand, borrower risk premium and other factors. in the future, the market competition mechanism can encourage commercial banks to negotiate independently with borrowers and adjust the point increase range in a timely manner. there is no need to wait until the interest rate difference between new and old mortgages has accumulated to be large before commercial banks make batch adjustments. this can alleviate conflicts in a gradual and orderly manner and maintain contractual seriousness.
the second is to remove the restriction on the minimum one-year mortgage interest rate repricing cycle. starting from november 1, 2024, floating rate mortgages with newly signed contracts will be consistent with other floating rate loans except mortgages, and the repricing cycle can be determined by the borrower and the borrower through independent negotiation. eligible borrowers with existing mortgage loans can negotiate with commercial banks to adjust the point increase in mortgage interest rates and at the same time adjust the repricing cycle so that existing mortgage interest rates reflect changes in the pricing benchmark (lpr) in a timely manner and smooth the transmission of monetary policy.
after the announcement, how will the existing mortgage interest rates be reduced?
answer: the market interest rate pricing self-discipline mechanism will issue an initiative to guide commercial banks to carry out a batch adjustment of existing mortgage interest rates before october 31, 2024.commercial banks will issue relevant announcements and batch adjustment details to uniformly reduce the points added to mortgage interest rates based on lpr, and provide convenience to borrowers as much as possible.the vast majority of borrowers can complete the "one-click operation" through online banking, mobile banking and other channels without going to a commercial bank branch. for details, please pay attention to the relevant information released by the official platform of the lending commercial bank in a timely manner.
after the batch adjustment is completed, both parties can also independently negotiate and dynamically adjust the existing mortgage interest rates based on market-oriented principles in accordance with the people's bank of china announcement [2024] no. 11.
source: cctv news client
