Release these heavyweight signals, can existing housing loans be adjusted? The latest statement from the central bank: lenders | mortgages | central bank

Another heavyweight news is coming from the real estate market. On the 14th, Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, stated at a press conference held by the State Council Information Office that "in accordance with the principles of marketization and rule of law, we support and encourage commercial banks and borrowers to independently negotiate changes to contract agreements, or to issue new loans to replace the original inventory loans.".

With multiple declines in LPR over a period of 5 years, there has been a constant call for interest rate adjustments on existing housing loans. Industry insiders point out that this is the first time that the financial management department has made a direct statement on the adjustment of existing mortgage interest rates. Next, will the interest rate of existing housing loans be adjusted and how will it be adjusted? How will it affect the borrower's wallet?

How to adjust it?

Dong Ximiao, Chief Researcher of Zhaolian, stated in an interview with China News Service that there are two possible approaches to adjusting the interest rates of existing housing loans - direct reduction and indirect reduction.

"It may change the bonus points," said Zeng Gang, director of the Shanghai Finance and Development Laboratory, in an interview with China News Service. "Because the interest rate of real estate mortgage loans is composed of LPR and bonus points with a term of five years or more, although LPR is also decreasing, the bonus points for existing loans are relatively high and will not be adjusted during the original contract period.". If optimization is needed, it can be further negotiated between commercial banks and customers on the basis of the existing adjustments of LPR, to adjust the markup.

Zeng Gang believed that LPR changes with market changes, and adding points was previously fixed. However, in reality, it does not reflect the true supply and demand situation of funds in the market. Therefore, it can be adjusted moderately through independent negotiation, that is, through the relationship between market supply and demand mechanisms. This not only reduces the actual repayment cost of mortgage borrowers, but also optimizes and adjusts the mortgage loan interest rate in line with the overall trend of interest rate changes.

Regarding the replacement of existing loans with newly issued loans, Dong Ximiao believes that loan replacement should be limited to the bank in principle and should not encourage cross bank "mortgage transfer". Next, it is recommended to establish a self regulatory mechanism for pricing market interest rates and agree on the overall principles for adjusting the interest rates of existing mortgage loans in banks; It is recommended that each bank's head office introduce specific plans to clarify the conditions, standards, and processes for direct and indirect reductions.

On the afternoon of the 14th, Zhongxin Jingwei consulted with a branch of China Construction Bank in Beijing as a customer regarding the possibility of negotiating a change in the interest rate of existing housing loans. The bank's customer manager stated that it is currently not possible. Another account manager from a joint-stock bank pointed out to China News Service that, to their knowledge, banks in Beijing are currently not viable.

What impact does it bring?

Since 2022, the phenomenon of early repayment of personal housing loans has increased. Zou Lan, in response to questions from reporters, stated that in the first half of this year, a total of 3.5 trillion yuan of personal housing loans were disbursed, exceeding 510 billion yuan more than the same period last year, indicating a significant increase in support for housing sales. However, statistical data shows that the overall balance of personal housing loans has slightly decreased, mainly due to changes in price relationships such as investment returns and mortgage interest rates. The phenomenon of residents using deposits or reducing other investments to repay existing loans in advance has significantly increased. This phenomenon does not have an impact on housing demand, it is an adjustment of resident asset allocation.

Zou Lan pointed out 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.

What impact will the adjustment of existing mortgage loans have on banks and lenders?

Dong Ximiao once mentioned that reducing the interest rates of some existing housing loans has the effect of "one arrow, three eagles": firstly, it helps to reduce the interest expenses of borrowers on housing loans, stabilize and expand housing consumption demand, and thereby promote the healthy and stable development of the real estate market; Secondly, it helps to narrow the interest rate difference between existing and new mortgage loans, reduce residents' push for early repayment and illegal "lending" behavior, and retain high-quality mortgage customers for banks; Thirdly, it helps to reduce the burden of housing consumption on residents, promote the conversion of savings into consumption and investment, and boost their willingness and ability to expand consumption.

In Dong Ximiao's view, reducing the interest rate on existing housing loans is a painful but long-term beneficial choice for banks, especially large ones. At the same time as reducing the interest rate of existing housing loans, it is agreed that borrowers may not make early repayments within a certain period of time.

Zeng Gang believed that there would indeed be a certain interest rate loss for banks, but this loss is within the bank's acceptable range. In the process of economic development, changes in financial institutions should be consistent with changes in the real economy. Because loan interest rates also need to reflect the market supply and demand situation, and currently the interest rates of other newly added loans are being adjusted, in this context, adjusting existing mortgage loans is also in line with the overall market development trend.

Zeng Gang pointed out that the adjustment of existing mortgage loans has also avoided some distortions. Due to the fact that many early repayments of loans nowadays are made by borrowing other loans in exchange for housing loans, which has also achieved the goal of actually reducing loan costs, this is a violation of regulations, which brings some personal risks to homebuyers during the operation process and also brings management flaws to banks. Instead of retaining arbitrage space, it's better to streamline it and reduce unnecessary trouble.

For homebuyers, Zeng Gang analyzed that a decrease in the interest rate of existing loans would lower their repayment costs, which actually increases their disposable income and can to some extent convert the saved funds into consumption or other purposes.

Dong Ximiao believes that simply because the central bank has made a statement, it cannot be taken for granted that the interest rates on existing housing loans must or will decrease - the decision-making power still lies with the banks, and whether to lower or not is legal and compliant.