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China’s home mortgage rates hit the lowest on record after the central bank’s latest move to cut the benchmark lending rate to boost the faltering economy. An increasing number of cities are lowering downpayment requirement ratio to support the struggling housing markets.
The People’s Bank of China (PBOC) on Monday lowered the five-year Loan Prime Rate (LPR), which home mortgage rates are based on, to 4.3% from previously 4.45%.
According to a notice released by the PBOC and the China Banking and Insurance Regulatory Commission (CBRIC) in May, the lower limit for mortgage rates for first-home buyers should be no lower than “LPR – 20 basis points”. That means the lower limit of home mortgage rate is now lowered to 4.1%, the lowest level in more than 20 years. Previously, home mortgage rates hit as low as 4.16% at the end of 2008.
After the recent LPR cut, several banks in the cities of Suzhou, Tianjin, Zhengzhou, Qingdao, Changsha and Wuhan have announced the move to cut the lower limit of first-home mortgage rates to 4.1%.
In addition to lowering mortgage rates, many local governments have guided financial institutions to reduce down payment ratio, in particular for second-home buyers, in a bid to boost the struggling housing markets. The trend is expanding recently from lower-tier cities to some top tier-two ones.
Since the start of August, in Nanjing, capital of East China’s Jiangsu province, and Suzhou city, also in the province, down payment ratio for second-home buyers who have paid off previous mortgages has been lowered to 30% from 50%, and the ratio for second-home buyers who haven’t paid off previous mortgages has been cut to 60% from previous 80%, according to public information.
In Wuxi, another city in Jiangsu province, the downpayment ratio for second-home buyers who have paid off previous mortgages has been cut to 30% from 40% and the ratio for second-home buyers who haven’t paid off previous mortgages has been lowered to 50% from 60%.
On August 16, Fuzhou city, capital of Southeast China’s Fujian province, cut the downpayment ratio for second-home buyers who have paid off their mortgages for their first home to 40% from previous 50%.
Under the current rules released by the PBOC, in cities with home purchase restrictions, downpayment ratio for first-time home buyers should be no lower than 30% and the ratio for second-home buyers who haven’t paid off previous mortgage loans should be no lower than 40%. In cities without home purchase restrictions, the ratios should be no lower than 20% and 30%, respectively.
Yang Kewei, deputy general manager of the research center of the China Real Estate Information Corporation (CRIC), said at an event in early June that the downpayment ratio for second-home buyers in most cities were between 30% – 70%. “Those with demand for upgrading housing are holding a wait-and-see attitude and they are waiting for lower downpayment ratio for second-home buyers.”
“In terms of boosting home sales, lowering mortgage rates is not as effective as lowering downpayment ratio,” he said at the time.
Back in 2008 amid the global financial crisis, the PBOC cut the lower limit for home mortgage rates to 70% of the benchmark lending rates and cut the minimum downpayment ratio to 20%, which was followed by a V-sharped rebound in 2009.
Similar things happened in 2015. The PBOC in September 2014 relaxed the rules for recognizing first-time home buyers and in March 2015, it lowered downpayment requirement ratio for first-time home buyers who borrowed from the Housing Provident Fund to 20% and second-home buyers 40%.
The combination of moves to lower down payment ratio and mortgage rates came after the latest data showed that China’s new loans to the household sector reached 1.71 trillion yuan in the first seven months of the year, slumping 56% from a year earlier.