PBOC Says New Personal Mortgage Loan Rate to Be Based on LPR
The changes will be effective Oct. 8, while contracts signed before then will follow the previous agreement.
(Bloomberg) -- China’s central bank said the interest rate on new personal mortgage loans will be based on the latest monthly loan prime rate.
The personal mortgage loan rate for a first home must not be lower than the loan prime rate of a corresponding tenor, the People’s Bank of China said in a statement on its website over the weekend. The rate for a second home must be no less than 60 basis points above the loan prime rate, it said.
The central bank said the new methodology will keep mortgage interest rates “basically stable” with the lowest rate under current system. PBOC’s provincial offices can set the floor of the rate in each region according to the national credit policy and the local situation.
The changes will be effective Oct. 8. Contracts signed prior to that date will follow the previous agreement, the PBOC said.
An index tracking Chinese developers listed in Hong Kong declined as much as 4% Monday, the biggest intraday drop in three weeks.
Under the new system, China will no longer allow banks to give discounts to a benchmark lending rate when setting mortgage levies, a change from the ability to provide a discount as much as 30% under current rules. In practice, lenders usually provide discounts of as much as 10%.
“The adjustment shows China wants to tamp down property speculation while it lowers borrowing costs in the economy,” Rong360 analyst Li Wanfu said.
Still, mortgage rates under the new system will likely stay broadly in line with current levels in the short term considering the PBOC has put pressure on banks not to reduce home mortgages, China International Capital Corp. property analyst Eric Zhang said.
--With assistance from Emma Dong.
To contact Bloomberg News staff for this story: Jing Jin in Shanghai at jjin32@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net
To contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net, Stanley James
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