China cuts rate floors on mortgages for 1st homes

Financial authorities make pro- growth move

China’s central bank and banking and insurance regulator on Sunday moved to lower interest rate floors on mortgages for first- time homebuyers by 20 basis points ( bps) off the benchmark loan prime rate ( LPR), culminating a flurry of housing market- reviving moves across the country as part of a broader pro- growth push.

The differentiated move is intended to support inelastic housing demand, while curbing property speculation, experts said, reckoning the structural policy easing will stabilize the housing market.

Apart from the 20 bps cut in the lower bound range of mortgage rates for first- time homebuyers, interest rate floors on mortgage lending for second- time homebuyers remain unchanged, read the momentous announcement on the website of the People’s Bank of China ( PBC), the country’s central bank.

The PBC described the fresh move as a revised housing credit policy differentiation, as the country reiterates its stance that housing is for living, not speculation, and eyes fostering a steady and soundly developing real estate market.

The policy tweak is mostly a structural effort to rein in speculative bets while meeting residents’ inelastic demand and improving their housing conditions, said Dong Dengxin, a professor from Wuhan University of

Science and Technology.

The decision sends “a clear policy signal to stabilize the housing market and the economy” at large, he said.

The announcement indicates the authorities’ resolve to turn around a lackluster property market, as a large downward revision of as much as 20 bps off the five- year LPR – a reference rate for mortgages loans – is set to guide banks toward offering lowerrate mortgages for first- time homebuyers, said Yan Yuejin, research director at Shanghai- based E- house China R& D Institute.

Prior to the national housing policy change on Sunday, local governments across the country had moved to ease curbs on home purchases or lower down payments on mortgages.

As Dong pointed out, more policy support is expected in the foreseeable future to stimulate overall consumption, as the country eyes strengthening the internal circulation of its economy in the face of geopolitical conflicts, among other external uncertainties.