Fried pot! Don't you need to pay off your mortgage in advance? Interest rate | stock | fryer

China Fund News Taylor

Over the weekend, a piece of news flashed across the screen, and everyone was discussing the statement made by Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, at the recent press conference of the State Council Information Office, regarding the reduction of interest rates on existing housing loans.

Let's take a look at what the director said first.

Zou Lan stated that although the quoted interest rate in the loan market has decreased by 0.45 percentage points, the interest rate on existing housing loans issued in previous years is still at a relatively high level due to the fixed amount of additional points stipulated in the contract during the contract period, which is closely related to the significant increase in early repayment. Early repayment objectively has a certain impact on the profits of commercial banks. According to the principles of marketization and rule of law, we support and encourage commercial banks and borrowers to negotiate independently to change contract agreements, or to issue new loans to replace existing loans.

Among them, "supporting and encouraging commercial banks to negotiate with borrowers to change contract agreements independently, or to issue new loans to replace existing loans," has sparked discussions in the market about lowering the interest rate of individual housing loans.

Everyone is asking: Is this a signal that the interest rates on existing housing loans will decrease in the second half of the year? Like Taylor, in the past few years, high interest rate car buyers could go to the bank to exchange for low interest rate mortgages?

At present, Taylor's mortgage interest rate, although it has been lowered to 4.89% through multiple LPR adjustments, is still lower than the five-year LPR rate of 4.2%. After calculation, there is still a gap. Assuming that we can really lower the interest rate on existing loans to the level of LPR, we can save a lot of money.

With the adjustment of LPR in June, the interest rates of personal housing mortgage loans in many cities such as Beijing, Shanghai, Guangdong, and Suzhou have recently been adjusted accordingly. Among them, the interest rates of first home loans in some cities have dropped to 3.6%.

According to monitoring data from China Index Research Institute, since 2023, more than 40 cities in China have adjusted the lower limit of first home loan interest rates to below 4%. The lowest interest rate for first home loans in cities such as Zhuhai, Nanning, Liuzhou, and Zhongshan has dropped to 3.7%. Cities such as Zhaoqing, Zhanjiang, Yunfu, and Huizhou have cancelled the lower limit of first home loan interest rates. As of the end of the second quarter, a total of 39 out of 70 large and medium-sized cities can maintain, lower or cancel the lower limit of local first home loan interest rates in a phased manner. The LPR for more than 5 years has been lowered by 10 basis points this time, and the first home loan interest rates in eligible cities are expected to fall within the range of 3.6% to 3.9%, continuing to break through historical lows.

Despite the continuous decline in interest rates for new home loans, the group that previously purchased houses at higher interest rates to bear housing loans did not benefit from this. Therefore, the new stance of the central bank on existing housing loans has sparked heated discussions.

How to view this statement?

Teacher from CITIC Securities also calculated that reducing mortgage interest rates is undoubtedly beneficial for mortgage holders.

For example, with a mortgage amount of 1 million yuan and a repayment period of 30 years, the equal principal and interest repayment method is used:

1) At the high point of 5.95% mortgage interest rate, the total interest amount is about 1.14 million yuan.

2) Loan at the latest LPR 4.2% interest rate, with a total interest of approximately 760000 yuan.

The former's interest even exceeded the principal, while the latter saved about 380000 yuan in interest compared to the former, which is not a small amount. And this also means a loss of bank mortgage income.

According to CITIC's interpretation, the central bank's statement on reducing mortgage interest rates this time is encouraging negotiation rather than coercion. Therefore, the bank's follow-up feedback on the "loan reduction guidelines" is expected to have a period of "vacuum period", and it may take some time to truly enjoy the benefits of loan reduction.

CITIC stated that early repayment of loans will affect the bank's interest income. In addition, the liquidity of bank funds will deteriorate, leading to an increase in the bank's debt pressure. The most important thing is that early repayment will have an impact on the bank's balance sheet, which in turn will affect the bank's stock price and shareholder mentality.

According to a report from First Financial, many bank clients and credit managers, including Bank of China, Construction Bank, China Merchants Bank, Hangzhou Bank, and Ningbo Bank, have been contacted. Most of them have responded that they have not received any relevant policies regarding the interest rate reduction for existing housing loans and will still implement the loan repayment policy according to the original contracted interest rate.

According to analysis by Zhongtai Securities, the possibility of a comprehensive reduction in existing housing loans is relatively low.

The adjustment process of interest rates for existing housing loans from 08 to 09: On October 22, 2008, the People's Bank of China expanded the downward trend of housing loans. On October 23, 2008, the People's Bank of China stated that financial institutions should independently determine the interest rate level for the unpaid portion of commercial personal housing loans issued based on comprehensive risk assessment in accordance with the terms of the original loan contract. However, the mandatory adjustment policy for existing housing loan interest rates has not been publicly released. In early 2009, Dahang took the lead in offering interest rate discounts on existing housing loans in some regions.

The proportion of people who enjoy the exchange rate of existing housing loans from 2008 to 2009 is expected to be less than 6%. In 2008, the benchmark for loans was lowered by 189bp, while in 2009, the weighted average interest rate for personal loans of listed banks decreased by 194bp compared to 2008. Excluding the impact of the benchmark reduction, which means that the downward trend in new housing loan prices and the exchange of existing assets have a drag on personal loan interest rates of about 5bp. At that time, the stock interest rate was adjusted, and the lower limit of the housing loan interest rate was reduced by about 89bp from 85% to 70%. Roughly estimated, about 6% of customers enjoyed the stock exchange. Considering the downward trend of new issuance prices, it is expected that the actual proportion of stock exchange enjoyed will be less than 6%.

Subsequent interpretation: The possibility of a comprehensive reduction in existing housing loans is relatively low. 1. At present, there is a significant gap between the scale and volume of housing loans compared to the previous year. The scale of domestic housing loans is nearly 40 trillion yuan, 13 times that of 2008. The proportion of mortgage loans from listed banks has increased by 10 points to 25% of total loans, which is the basic foundation for stable bank assets. 2. The implementation of "implementing policies based on the city" for many years has made it difficult to make unified and comprehensive adjustments. 3. One of the purposes is to provide a feasible path for banks to alleviate the pressure of early repayment. Mortgage customers are one of the highest quality customer types of banks, with high comprehensive income. A reasonable interest rate reduction plan is better than customer loss, and the People's Bank of China emphasizes the principle of marketization and rule of law; Differentiated pricing for high-quality customers with low risk and corresponding low returns, where customers without early repayment ability do not have an advantage in the game.

Huaxin Securities analyzed that on Friday, the central bank made its first direct statement on the adjustment of existing mortgage interest rates, aiming to alleviate the current difficulties of the real estate market bottoming out and residents and banks facing a contraction of their balance sheets. The current round of interest rate cuts on existing housing loans should not be as one size fits all as they were in 2008, but more based on differentiated reductions in the interest rates of existing housing loans. It is expected to gradually expand from small and medium-sized banks to state-owned large banks, just like in 2008. The reduction of existing housing loans will help stabilize the real estate market, restore consumption, and revive the economy.