On October 25th, China’s major commercial banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Postal Savings Bank of China, and Bank of Communications, announced significant adjustments to the interest rates on existing home loans. The adjustments specifically target loans that have an LPR (Loan Prime Rate) markup higher than a reduction of 30 basis points, bringing them down to a maximum of 30 basis points less.
This adjustment was implemented uniformly by the banks, allowing most borrowers to avoid visiting branch locations or taking action online. As a result, it is expected that the average interest rate on existing home loans will drop by about 0.5 percentage points, ultimately saving borrowers around 150 billion yuan in interest expenses and benefiting approximately 50 million households and 150 million residents.
Experts suggest that this policy change will yield a number of positive impacts on the macroeconomy.
Firstly, it is seen as a confidence booster for the market. High existing home loan rates have long been a point of concern, particularly as the economy faces downward pressure and mounting mortgage burdens weigh heavily on many families. This policy adjustment is a proactive response to public concerns and has already elicited positive reactions in the capital markets.
Secondly, there is strong support for consumer spending and investment. With reduced mortgage interest, individuals and families will see a tangible increase in disposable income. Given the cumulative decrease of 0.6 percentage points in the 5-year LPR since the beginning of the year, home loan rates—following the LPR’s repricing—could see a reduction of up to 1.45 percentage points. This alleviation of repayment pressure increases disposable income, allowing households to engage more broadly in consumer spending.
This initiative is especially beneficial for young families, helping them ease their financial burdens and boost their confidence in spending. For small businesses, lower borrowing costs can lead to improved cash flow, allowing for potential expansion of operations.
Lastly, these adjustments are expected to stabilize the real estate market. With the decrease in existing home loan interest rates, concerns among homebuyers about widening spreads between new and old mortgage rates will likely diminish, helping to unlock demand for home purchases and contributing to a steady and healthy development of the real estate sector.
Following the implementation of policies aimed at lowering existing home loan rates, cities like Beijing have seen noticeable increases in inquiries and transactions for both new and second-hand homes. Reports suggest that in October, early mortgage repayments have decreased by 20% compared to the previous month before the policy was introduced.
Market analysts believe that the recent combination of support measures for the real estate sector is enhancing residents’ expectations for home purchases, especially as local governments adopt tailored measures for their respective cities, indicating signs of stabilization in the real estate market.
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