China further eases mortgage rate guidelines to boost demand

A cable is seen near residential buildings under construction in Beijing, China April 20, 2018. REUTERS/Jason Lee

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BEIJING, May 15 (Reuters) – China’s financial authorities on Sunday authorized a further cut in mortgage interest rates for some homebuyers, in a new effort to support its property market and revive a flagging engine of the second Mondial economy.

For purchases of first homes, commercial banks can reduce the lower limit of interest rates on home loans by 20 basis points, based on the corresponding duration of the prime loan reference rates (LPR), the People’s Bank of China (PBOC) and China’s Banking and Insurance Regulatory Commission in a statement.

The reduction aims to support demand and promote stable and healthy development of the real estate market, the statement said.

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In its April monthly fix, the PBOC kept its one-year LPR unchanged at 3.70% and the five-year LPR, typically used as a benchmark for mortgages, at 4.60%.

Banks in many cities slashed mortgage rates in the first quarter following calls from authorities to support buyer sentiment in a market rocked by a liquidity crunch and struggling developers last year, and now by nationwide COVID-19 outbreaks. Read more

“Policies such as reduced down payments, lower mortgage interest rates, easing restrictions on second-hand home sales and easing restrictions on purchases will create better conditions for active transactions on the market between mid and late May,” said Yan Yuejin, research director of Shanghai. E-house China and Development Institute.

The latest lending guidance came after central bank data on Friday showed new bank lending plunged to its lowest level in more than four years in April, amid varying degrees of COVID lockdowns in dozens cities have curbed lending, with mortgages contracting.

To free up more funds for lending, the PBOC on April 25 reduced the amount of cash lenders must set aside as reserves. More modest easing measures are expected as authorities pledge to roll out more policies to support the broader economy.

But despite the easier mortgage advice, a lot depends on the banks.

“During shutdowns, banks tend to be more risk averse,” said Iris Pang, senior economist for Greater China at ING, wrote in a note after the central bank data on Friday.

“They were told to keep delinquent loans on their books. Under these circumstances, banks became reluctant to originate new loans, as it would mean taking on more risk in getting new loans and waiting for them to become outstanding. suffering if the lockdowns continue.”

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Reporting by Albee Zhang and Ryan Woo; Editing by William Mallard

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