In a bold move to support households impacted by a sluggish economy, the People's Bank of China (PBOC) has directed commercial banks to lower interest rates on existing housing loans. This initiative requires all banks to gradually reduce mortgage rates by at least 30 basis points below the PBOC's Loan Prime Rate (LPR) by October 31.
Despite previous efforts to stimulate the property market, such as eliminating mortgage rate floors in most regions, sales and liquidity in the market remain stagnant. Existing homeowners have been burdened with high-rate loans, prompting many to pay off their mortgages early and limit their spending.
The PBOC acknowledges the need for adjustments in the mortgage rate pricing mechanism to address these challenges and revitalize the property sector. The decision to cut mortgage rates is aimed at boosting the market and restoring consumer confidence in China's economy.
China's property industry, once a key driver of economic growth, has faced numerous challenges in recent years, including a liquidity crisis triggered by regulatory actions against high leverage among developers. The PBOC's latest move is seen as a crucial step towards stabilizing the sector and preventing deflationary pressures.
As of June, the total value of individual mortgages in China was 37.79 billion yuan ($5.39 billion), showing a 2.1% decline from the previous year. The PBOC's intervention is expected to provide relief to homeowners and stimulate demand in the property market, potentially impacting the overall economic outlook.
With this development, investors and consumers in China should monitor changes in mortgage rates and market conditions closely to make informed decisions about their finances and investments. The PBOC's efforts to support the property market could have far-reaching implications for the country's economy and the global financial landscape.