At least twenty banks around China have suspended the provision of loans for first home purchasers as rate hikes across the country continue unabated.
The latest data from Rong360 indicates that the average first buyer home loan rate in China rose to 4.73% in May, for a month on month gain of 4.64% and an increase of 6.28% compared to the same period last year when the figure was 4.45%.
First-tier cities have taken the lead in hikes to home lending rise, with Beijing banks already adjusting the discount rate to 5%, and some observers expecting them to be the first to rate rats to 10% above the loan prime rate.
The huge number of second-tier cities scattered across China are following the lead of the big urban centres, with 35 lifting first buyer home loan rates to varying extents in May, majority lifting them to the prime rate, and many cancelling the provision of discount rates.
According to Rong360 analyst Li Wei, the current spate of interest rate adjustments are motivated by a several factors, including a conducive regulatory environment and response to local government policies to adjust the property market, as well as restrictions on home lending volumes which makes it easier to raise first buyer home loan rates from a revenue perspective.
As the cost of funds rises amidst China’s deleveraging drive, lenders are finding it difficult to satisfy capital demand via the interbank market, and adopting measures including hikes in deposit rates as well as the yields for wealth management products.
As a consequence 20 of the 533 banks included on Rong360’s survey have suspended home loans with other expected to follow suit in the near future.
According to Li current policies for strictly controlling home loan increases will make it difficult for banks to raise earnings significantly via these rate hikes, and that many even see a flatlining in profits, while an imbalance between costs and profits could prompt many to withdraw from home lending altogether.
While Li expects it to be far harder for homebuyers to obtain credit in the near-future, he does not anticipate a large-scale suspension of housing loans by banks that would disrupt the market given the current regulatory framework.