Bloomberg: China’s Central Bank Proposes to Cut Rates on Unpaid Mortgages
China’s central bank has proposed cutting rates on outstanding mortgages by nearly 80 basis points. The regulator’s plans to sharply make loans cheaper, citing sources reports Bloomberg.
To stimulate domestic consumption amid a slowing economy, the central bank wants to cut interest rates on loans worth 37.79 trillion yuan ($5.3 trillion). This will allow borrowers to save almost $42 billion in interest payments annually, but will sharply reduce banks’ margins, with their income falling by 6.4 percent as early as 2025. The changes are expected to take place in two stages, in the coming weeks and in early 2025.
At the end of 2023, the average rate on existing mortgages in China was 4.27 percent, and on mortgages issued, it was a record low of 3.45 percent.
The rate cuts will save people nearly 300 billion yuan ($42 billion) a year in interest payments, helping to boost domestic consumption, support the economy and protect household wealth, said Larry Hu, head of China economics at Macquarie Group Ltd.
“Basically, this is a transfer of wealth from banks to households, which has a positive impact on consumption,” he noted.
Beijing has stepped up efforts to rescue the struggling property sector, which accounts for a quarter of the economy, since early 2024. In February, it announced the biggest mortgage rate cut to support the property market and the economy. Five-year mortgages (LPR) were cut from 4.2 percent to 3.95 percent per annum. The 25 basis point cut was the biggest since 2019 and far exceeded analysts’ forecasts. However, according to Ben Bennett, Asia Pacific investment strategist at Legal and General Investment Management, most people are not buying homes because mortgage costs are too high, they are worried that developers will go bust and house prices will fall.
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