BEIJING (Reuters) – The People’s Bank of China (PBOC) told commercial banks on Sunday to start lowering interest rates on all existing housing loans, in a sweeping move to help lighten the mortgage burden on households hit by a slowing economy.
All commercial banks must, in batches, reduce interest rates on existing mortgages by Oct. 31 to no less than 30 basis points below the PBOC’s Loan Prime Rate (LPR), the central bank’s benchmark rate for mortgages, a PBOC statement said.
Over the past year, China has rolled out a string of property stimulus measures. Most local governments, except for some megacities including Beijing and Shanghai, have scrapped floors on mortgage rates. But the measures have struggled to boost sales or increase liquidity in a market shunned by buyers.
Previous mortgage rate reductions primarily benefited new homebuyers, leaving existing homeowners with higher-rate loans. This has resulted in a rush by households to pay off existing mortgages early, further constraining households’ spending and consumption.
“As market-oriented reforms on interest rates continue to deepen, and the supply and demand relationship in the real estate market undergoes major changes, the current mortgage rate pricing mechanism has exposed some shortcomings,” the PBOC said in its statement.
“With the public showing strong responses (to the situation), the mechanism needs urgent adjustments and optimisation,” the PBOC added.
The outstanding value of individual mortgages stood at 37.79 billion yuan ($5.39 billion) at the end of June, down 2.1% year-on-year, according to official data.
The widely expected decision to cut mortgage rates aims to revive China’s crisis-hit property market and alleviate cautious consumer sentiment that has pushed the world’s second-largest economy to the brink of deflation.
China’s property sector, once a pillar of the economy, has lurched from one crisis to another since 2021, when a regulatory crackdown on high leverage among developers triggered a liquidity crisis.
($1 = 7.0110 renminbi)