PBOC Orders Interest Rate Cuts on Existing Mortgages

BEIJING (Reuters) – The People’s Bank of China (PBOC) instructed commercial banks on Sunday to begin lowering interest rates on all existing housing loans. This action aims to ease the mortgage burden on households impacted by a slowing economy.

All commercial banks are required to reduce interest rates on existing mortgages by October 31, setting rates no higher than 30 basis points below the PBOC’s Loan Prime Rate (LPR).

Over the past year, China has implemented various property stimulus measures. Most local governments, aside from major cities like Beijing and Shanghai, have eliminated minimum mortgage rates. However, these initiatives have not effectively boosted sales or increased liquidity in a market largely avoided by buyers.

Previously, mortgage rate reductions predominantly benefited new homebuyers, leaving existing homeowners with higher-rate loans. This discrepancy has prompted a rush among households to pay off existing mortgages early, further limiting their spending and consumption.

The PBOC stated, “As market-oriented reforms on interest rates continue to deepen, and as the supply and demand relationship in the real estate market undergoes major changes, the current mortgage rate pricing mechanism has revealed some shortcomings.”

With public frustration growing, the PBOC remarked that urgent adjustments and optimization of the mechanism are necessary.

The total value of individual mortgages was reported at 37.79 billion yuan ($5.39 billion) at the end of June, reflecting a 2.1% decrease year-on-year according to official data.

This anticipated decision to cut mortgage rates is aimed at revitalizing China’s beleaguered property market and alleviating the cautious consumer sentiment that has placed the world’s second-largest economy on the brink of deflation.

China’s property sector, once a key economic driver, has faced successive crises since 2021, following regulatory crackdowns on excessive developer leverage that led to a liquidity crisis.

($1 = 7.0110 Chinese yuan renminbi)