China to Reduce Existing Mortgage Rates by End of October; Cities Relax Home-Buying Restrictions, Reports Reuters

BEIJING – On Sunday, China’s central bank announced plans for commercial banks to reduce mortgage rates for existing home loans prior to October 31. This move is part of broader efforts to support the struggling property market as the economy continues to slow.

According to the People’s Bank of China (PBOC), lenders must lower interest rates on existing mortgages by at least 30 basis points below the Loan Prime Rate, the central bank’s standard for mortgage rates. On average, the reductions are expected to be around 50 basis points.

In recent months, China has implemented various measures, including lower down-payment ratios and reduced mortgage rates, aimed at revitalizing the ailing property sector. However, these initiatives have yet to significantly improve sales or increase liquidity in a market that buyers have largely avoided, which has adversely affected overall economic growth.

In a recent development, the city of Guangzhou announced it would remove all restrictions on home purchases, while Shanghai and Shenzhen are set to relax conditions for housing purchases by non-local buyers, along with decreasing the minimum down-payment for first-time buyers to no less than 15%.

Earlier announcements followed a significant stimulus package unveiled by the government aimed at reviving the economy from a deflationary slump, reflecting a more proactive approach to economic challenges.

Recent data indicated that new home prices saw their steepest decline in over nine years in August, with property sales down by 18% in the first eight months of the year. The PBOC’s mortgage rate cuts are intended to alleviate the burden on homeowners and spur activity in the property market, as well as boost domestic consumption.

The PBOC acknowledged that existing rate-setting mechanisms in the mortgage market need urgent revisions due to the evolving relationship between supply and demand in real estate. It noted that public feedback emphasized the necessity for these adjustments.

Major state-owned banks, including Industrial and Commercial Bank of China and China Construction Bank, expressed their commitment to implementing the new policies in an orderly manner. Most local governments, aside from large cities like Beijing and Shanghai, have already eliminated minimum mortgage rate floors.

Historically, mortgage rate reductions had primarily favored new homebuyers, often leaving current homeowners with higher-rate loans. This situation has prompted many households to expedite the repayment of existing mortgages, further limiting their overall spending.

As of the end of June, the total outstanding mortgage value was approximately 37.79 billion yuan, representing a 2.1% decrease year-on-year, according to official statistics.

Additionally, the PBOC announced that it would extend supportive measures for real estate development loans and trust loans until the end of 2026 to better meet developers’ financing needs.