China’s central bank announced on Sunday that it will require commercial banks to lower mortgage rates for existing home loans before October 31, as part of a broader effort to support the struggling property market amid an economic slowdown. The People’s Bank of China (PBOC) stated that banks should reduce interest rates on existing mortgages by at least 30 basis points (bps) below the Loan Prime Rate (LPR), which serves as the benchmark for mortgage rates. This initiative is expected to result in an average cut of approximately 50 bps for existing loans.
The move is part of a series of policies implemented this year to revive China’s crisis-hit property sector, which has faced significant challenges, including falling home prices and declining sales. Despite the introduction of various measures aimed at stimulating the market, including reductions in down-payment ratios and mortgage rates, the stimulus has struggled to effectively increase liquidity or attract buyers.
In a related development, the city of Guangzhou announced the removal of all restrictions on home purchases, while major cities like Shanghai and Shenzhen plan to ease restrictions on housing purchases for non-local buyers and lower the minimum downpayment for first-time buyers to no less than 15%. These announcements follow China’s unveiling of its largest economic stimulus package since the COVID-19 pandemic, aimed at rejuvenating the economy.
Recent data has revealed a concerning trend, with new home prices falling at their fastest rate in over nine years in August, and property sales plummeting by 18% in the first eight months of the year. The mortgage rate reduction is designed to alleviate the financial burden on homeowners and stimulate both the property market and domestic consumption, which has weakened significantly. The PBOC highlighted that ongoing market-oriented reforms and changing supply-demand dynamics in the real estate sector have exposed flaws in the current mortgage rate pricing mechanism, necessitating urgent adjustments.
In support of this initiative, China’s four largest state-owned banks, including the Industrial and Commercial Bank of China and China Construction Bank, have pledged to actively comply with the new policy and promote the orderly adjustment of existing mortgage rates. Most local governments, excluding some major cities like Beijing and Shanghai, have already removed minimum floors on mortgage rates. The outstanding value of individual mortgages fell to 37.79 trillion yuan (approximately $5.39 billion) at the end of June, reflecting a year-on-year decline of 2.1%. Additionally, the PBOC has extended supportive measures for real estate development loans and trust loans until the end of 2026, aiming to better meet developers’ financing needs.
Overall, these measures represent China’s commitment to stabilizing its property market and fostering economic recovery in the face of persistent challenges.
