Recently, several banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China have issued announcements stating that starting from October 25th, they will carry out a batch adjustment of existing personal housing loan interest rates. Most banks are taking similar actions; except for loans in Beijing, Shanghai, Shenzhen, and other places that are second-home loans, other eligible housing loan interest rates will be adjusted to the Loan Prime Rate (LPR) minus 30 basis points (BP). At the same time, different banks have some specific adjustments to their rules.

Experts have indicated that this adjustment is in line with the new situation of the real estate market and will further reduce the monthly mortgage pressure on homebuyers.

Defining the Scope of Adjustment

Li Peijia, the head of the China Financial Team at the Bank of China Research Institute, stated that this adjustment of existing housing loan interest rates is beneficial in reducing the debt burden on residents, promoting consumption, and has characteristics of timeliness, automation, and uniformity. In terms of timeliness, since the central bank announced the policy on September 24th, commercial banks have been actively responding, with several banks including Industrial and Commercial Bank of China and Bank of China having already issued notices for the adjustment of existing housing loan interest rates and are promoting their implementation. From the perspective of automation, this adjustment of existing housing loan interest rates does not require individual applications; banks will automatically carry out batch adjustments. In terms of uniformity, banks have generally adjusted the interest rates of eligible housing loans to LPR minus 30BP, while in the previous round of adjustments, individuals negotiated with banks, resulting in a larger variation in the adjusted interest rate margins.

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Industry insiders have analyzed that although the added points of the housing loan based on the LPR are fixed within the contract term according to the contract agreement, the fixed added points cannot reflect changes in factors such as the credit of the borrower and market supply and demand. With the continuous deepening of interest rate marketization reform, it is necessary to optimize the institutional design to promote commercial banks and borrowers to change the contract in an appropriate manner. Commercial banks will carry out batch adjustments on eligible existing housing loans through industry self-regulation and coordination.

It is understood that with the emergence of new changes in the supply and demand relationship of China's real estate market, in order to promote interest rate marketization reform, protect the legitimate rights and interests of both lenders and borrowers, and promote the stable and healthy development of the real estate market, the People's Bank of China, together with relevant departments, has introduced policies to further improve the pricing of commercial personal housing loans. Recently, the People's Bank of China issued an announcement on improving the pricing mechanism for commercial personal housing loans (People's Bank of China Announcement No. 11 of 2024). Subsequently, the Market Interest Rate Pricing Self-Disciplinary Mechanism issued an initiative on batch adjustments of existing commercial personal housing loans, mentioning that commercial banks should seriously implement the initiative requirements, formulate implementation plans as soon as possible, and major commercial banks should issue announcements on the same day of the initiative's release, and no later than October 12th to release operational details, responding to customer concerns in a timely manner. Recently, commercial banks have actively responded to the self-discipline mechanism's initiative, and are legally and orderly advancing the adjustment of existing commercial personal housing loan interest rates in accordance with market-oriented and rule-of-law principles.

It is worth noting that according to the scope of housing loan adjustments defined by each bank, not all existing housing loans can enjoy the interest rate benefits.

The announcement by Postal Savings Bank of China on batch adjustment of existing personal housing loan interest rates shows that the scope of this interest rate adjustment includes: commercial personal housing loans that have been disbursed, including ordinary pure commercial personal housing loans and commercial personal housing loans in the combination of provident fund loans. The scope of this interest rate adjustment does not include: commercial housing loans (including commercial and residential mixed-use housing loans), provident fund loans, and the provident fund loan part in the combination loans.

The announcement by Industrial and Commercial Bank of China on batch adjustment of existing personal housing loan interest rates shows that the bank will implement the adjustment of existing housing loan interest rates for personal housing loans that meet the following conditions at the same time: commercial personal housing loans that the bank has disbursed for the purpose of purchasing residential housing, including ordinary pure commercial personal housing loans and commercial personal housing loans in the combination of provident fund loans; existing personal housing loans with an added point margin higher than -30BP based on the LPR (including first and second homes and above); it must be a floating interest rate pricing method, and loans with fixed interest rates and benchmark interest rates must be converted to floating interest rates before adjustment.

The announcement by Bank of China on carrying out the adjustment of existing personal housing loan interest rates shows that the bank's existing commercial personal housing loans will be included in the adjustment scope. However, in terms of adjustment rules, the bank has further refined the loans based on the Loan Prime Rate, such as if there is no new loan interest rate加点 policy floor or the加点 policy floor is not higher than -30BP in the city where the housing loan is located, then those with an LPR加点 margin higher than -30BP will adjust their LPR加点 margin to -30BP; those with an LPR加点 margin not higher than -30BP will not be adjusted.

Yan Yuejin, the deputy dean of the Shanghai Yiju Real Estate Research Institute, stated that this adjustment is a significant event in reducing the cost of funds in the existing housing loan field and the existing property field, which not only reduces the pressure of early repayment faced by banks but also helps to boost consumer spending among residents.Optimization of Batch Adjustment

In accordance with the initiative regarding the batch adjustment of existing housing loan interest rates, commercial banks are required to implement a unified batch adjustment of interest rates for existing housing loans (including first, second, and subsequent sets) by October 31, 2024, in principle.

On the basis of the unified batch adjustment of interest rates for existing housing loans, commercial banks have refined various requirements. For instance, Industrial and Commercial Bank of China and Postal Savings Bank of China have clearly stated that for existing floating interest rate housing loans based on the Loan Prime Rate (LPR) as the pricing benchmark, banks will proactively adjust the spread value without the need for customer application.

For the situation of existing fixed interest rate and benchmark interest rate loans, many banks have clarified that customers need to apply to the bank online or offline to adjust the interest rate pricing method and convert to LPR floating interest rate pricing. That is to say, only after customers have processed the "fixed to floating" business, can the bank then adjust the interest rate according to the adjustment rules. For example, the notice of the China Construction Bank's batch adjustment of existing housing loan interest rates in 2024 shows that loans priced using benchmark interest rates and fixed interest rate loans that can be included in this batch adjustment, customers must apply to the bank before October 23, 2024 (inclusive), to actively process the "fixed to floating" business. After converting to floating interest rate loans, the bank will conduct this batch adjustment according to the rules for floating interest rate loans.

On the specific operational level, several banks have indicated that customers who need to apply for "fixed to floating" can start from October 12, 2024 (inclusive), through their respective bank's mobile banking, personal loan mini-programs, and other online channels, to handle it by themselves according to the system prompts, or they can contact the loan handling institution to apply for processing.

At the same time, banks have also made detailed requirements for the batch adjustment of "second set to first set." Industrial and Commercial Bank of China has clarified that eligible first set, second set, and subsequent sets of existing commercial individual housing loans can all be batch adjusted. For example, if the loan is not in Beijing, Shanghai, Shenzhen, and other places, due to the same lower limit of loan interest rates for the first and second sets of houses, there will be no need to apply for "second set to first set," and the bank will batch adjust the interest rate downward. If the loan is in Beijing, Shanghai, Shenzhen, and other places and meets the housing loan standards for "second set to first set," customers can contact the loan handling bank to apply for "second set to first set," and after approval, they can enjoy more favorable first set housing loan interest rates.

In addition, does the commercial bank charge fees for this batch adjustment of existing housing loan interest rates? Reporters have learned from several banks that banks do not charge customers related fees during the adjustment process of existing housing loan interest rates.

Lou Feipeng, a researcher at the China Postal Savings Bank, said that the batch adjustment method adopted by banks for eligible existing housing loan interest rates is not only conducive to improving the efficiency of business handling and reducing the costs of residents and the bank's own business handling, but also has a positive significance for the implementation of preferential policies for the adjustment of existing housing loan interest rates as soon as possible, allowing good policies to be implemented more effectively and quickly.

Significant Reduction in Monthly Payments

After this round of interest rate adjustment, how much can users reduce their housing loan interest rates? How much money can be saved each month?Several banks have clarified that if the mortgage loan is based on the LPR (Loan Prime Rate) as the pricing benchmark with a floating interest rate and the current interest rate is higher than LPR minus 30 basis points (BP), eligible mortgage loan interest rates will be adjusted to LPR minus 30 BP. The People's Bank of China authorized the National Interbank Funding Center to announce that the loan market报价 interest rate on September 20, 2024, is: the 1-year LPR is 3.35%, and the LPR for terms over 5 years is 3.85%. Since the mortgage term is generally over 5 years, if the LPR value used by the customer's loan has been adjusted to 3.85%, the original mortgage interest rate can be reduced to 3.55%.

Yan Yuejin stated that this reduction signifies the official start of a nationwide effort to lower the existing mortgage loan interest rates. It also implies that starting from November this year, customers will enjoy the benefits of a comprehensive reduction in existing mortgage loan interest rates.

For example, if a housing loan has a term of 30 years, with the benchmark value for LPR over 5 years at 3.85%, and the current mortgage interest rate is LPR plus 20 BP, which is 4.05%, after adjustment, the mortgage interest rate will be LPR minus 30 BP, which is 3.55%, a decrease of 50 BP from before the adjustment. If the loan amount is 1 million yuan, with a 30-year term and equal principal and interest payments, the monthly repayment before the adjustment was approximately 4,803 yuan, and after the adjustment, it will be approximately 4,518 yuan, allowing customers to save about 285 yuan per month.

It is worth noting that although there is a concentrated adjustment of existing mortgage loan interest rates this time, there will still be short-term differences in some loan interest rates after the adjustment. Why is that?

It is understood that because this interest rate adjustment only adjusts the LPR plus or minus points and does not adjust the loan repricing date, and different customers have different loan repricing dates (it could be January 1st of the following year or the loan disbursement date), the loan interest rate may not have been repriced during the batch adjustment. The LPR value for terms over 5 years (pricing benchmark) used by the loan could be 4.2%, 3.95%, or 3.85%, which may result in differences after the batch adjustment of existing mortgage loan interest rates. On the loan repricing date, after the loan is repriced, the loan interest rates that participated in this batch adjustment will be adjusted to the same level.

According to the statistical report on the direction of financial institution loans released by the People's Bank of China for the second quarter of 2024, by the end of the second quarter of this year, the national balance of personal housing loans was 37.79 trillion yuan, a year-on-year decrease of 2.1%. The combined balance of personal housing loans of the four major state-owned banks for the same period was about 22.3 trillion yuan, accounting for about 59% of the national total. Dong Ximiao, Chief Researcher at China United, stated that after the completion of this batch adjustment, it is expected that the reduction in existing mortgage loan interest rates will reduce the banks' interest income by about 150 billion yuan per year. However, as the interest rate difference between new and old mortgages narrows, the phenomenon of early repayment may decrease, which is beneficial for banks to stabilize the scale of housing loans.