China is planning to reduce interest rates on over $5 trillion worth of existing mortgages as early as this month, according to sources familiar with the matter. The move is part of an accelerated effort to lower borrowing costs for millions of families, aiming to stimulate consumption and boost the economy.
Certain banks are in the final stages of preparation for the imminent adjustments to mortgage rates, with some homeowners expected to benefit from an immediate rate reduction of up to 50 basis points. The exact timeline for the rate cuts is still being finalized and subject to change, as confirmed by the sources. The People’s Bank of China and the National Financial Regulatory Administration have not provided official comments on these developments.
An earlier report by Bloomberg News indicated that authorities are considering allowing borrowers to renegotiate terms with their current lenders before January, a period when banks typically reevaluate mortgage rates. The proposed rate cuts are anticipated to be implemented gradually in two phases, totaling approximately 80 basis points.
The objective of these measures is to alleviate financial burdens on households amid sluggish domestic spending and escalating deflation risks. Despite achieving record-low average mortgage costs this year, most families have not yet experienced the benefits as banks are set to reprice existing loans in the coming year. This discrepancy has led to frustration among some homeowners, prompting an increase in early mortgage repayments.
The impending rate cuts by China also coincide with concerns raised by Wall Street analysts that the country may fall short of its economic growth target of around 5% this year. A downturn in Chinese stock markets has further eroded confidence in the economy, intensifying pressure on policymakers to arrest the downward trend.
China’s outstanding mortgage debt, considered prime assets by Chinese lenders, totaled 37.79 trillion yuan ($5.3 trillion) as of June, the lowest level in nearly three years. Additional rate reductions would place further strain on banks, whose margins have already plummeted to a record low of 1.54% by the end of June, well below the 1.8% threshold deemed necessary for maintaining reasonable profitability.
Analysts at Shenwan Hongyuan Group estimate that homeowners could save over 300 billion yuan annually with an 80 basis points rate cut. For a household with a 30-year mortgage of 1 million yuan, monthly payments are projected to decrease by approximately 9%.
Despite previous efforts to lower borrowing costs, the Chinese government still grapples with a property market slowdown, coupled with external challenges such as increasing protectionism and a fragile global economic outlook impacting exports. The government’s growth target is at risk, prompting calls from economists for additional stimulus measures to revive domestic demand.
