China’s New Housing Loan Policies: A Stimulus for Consumer Spending
China Implements Decrease in Interest Rates on Existing Housing Loans
China has officially implemented a decrease in the interest rates on existing housing loans, a move that will lessen the financial burden of millions of households and hundreds of millions of residents. This has been done in the hope of stimulating consumer spending.
As per notifications issued by the People’s Bank of China and the National Financial Supervision and Administration Bureau, banks began to lower the interest rate level on the first set of existing commercial personal housing loans from Monday, September 25. The adjustment applies to first home loans, second to first home loans, and commercial personal housing loans in the Provident Fund combination loans.
Policy Benefits for Borrowers
Zou Lan, Director of the Monetary Policy Department of the People’s Bank of China, estimates that over 90% of qualified borrowers can enjoy the policy benefits at the first time. The interest rates on existing home loans for other borrowers will also be adjusted by the end of October.
After the adjustment of the interest rate on the existing first set of commercial personal housing loans, the financial burden of tens of millions of households and hundreds of millions of residents will significantly decrease. The average interest rate drop is about 0.8 percentage points. The adjustment may involve more than 40 million customers and the scale of loans adjusted may reach 25 trillion yuan (RMB, the same below, 4 trillion 6780 billion new yuan
Impact on Consumer Spending
Taking an existing housing loan of 1 million yuan, a period of 25 years, and an original interest rate of 5.1% as an example, if the mortgage interest rate drops to 4.3%, the borrower can save more than 5000 yuan in interest expenses each year. This significant saving is expected to increase the ability to consume.
Xue Hongyan, Deputy Dean of Xingtu Financial Research Institute, mentioned in an interview that there are two core purposes for lowering the interest rate on existing housing loans: one is to slow down the wave of early repayment, and the other is to stimulate consumption.
Expectation of Increased Residential Purchases
The report indicates that in accordance with the requirements of the central bank on August 31 for adjusting the down payment ratio, particularly the significant reduction in the down payment ratio for the second set of houses, coupled with the relaxation of various local policies including “recognizing houses but not loans” and purchase restrictions, the demand for residential purchases is expected to be further released.
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