China’s Central Bank Praises Hike in Home Loan Rates to 10% Above Benchmark

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The People’s Bank of China has given its support to the latest round of home loan rate hikes by lenders in Beijing, which it says are in consonance with central government policy guidance and requirements.

Lender around Beijing recently hiked first home buyer rates to between 5%  – 10% above the benchmark rate.

Large-scale banks with lower capital costs have launched smaller hikes in first home loan rates to around 5% above the benchmark rate, while modest-sized banks under greater capital constraints have opted to lift their rates to 10% or more above the benchmark.

The People’s Bank of China Business Management Department said it actively supported the rate adjustments by Beijing banks, as they were independent actions on the part of lender based on market capital shift and their own balance sheet management needs that also happened to satisfy policy requirements and guidance.

According to PBOC’s Business Management Department the string of real estate market control policies launched by Beijing since March of this year had shown some initial effectiveness, and that banks, which are the primary instrument of property lending policy, had actively cooperated with real estate market controls by using hikes in personal home loan rates to suppress the excessively rapid growth in demand.

The current round of adjustments to Beijing home loan rates are significant of broader trends around China, where rates between 5 – 10% above the benchmark are fast becoming the norm in major urban centres such as Nanjing, Shanghai and Shenzhen.

Some cities, such as the Henan province capital of Zhengzhou, have seen banks raise mortgage rates for first home buyers to up to 30% above the benchmark.

The shift marks a sharp turnaround compared to the situation on Chinese housing markets just several years ago, when most banks were offering mortgages rates at a 15% discount to the benchmark, with PBOC and the banking regulator even permitting discounts of up to 30% for first homebuyers.

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