Consumer Loans for Home Purchases Stage a Come Back Despite 2017 Crackdown


Semi-licit forms of lending designed to side step official curbs on financing for home purchases have already made a comeback in China, despite the banking regulator’s crackdown on such practices towards the end of 2017.

In October last year the China Banking Regulatory Commission in tandem with municipal  government launched a crackdown on the widespread use of consumer or personal business loans to finance home purchases and property investments.

According to some reports realtors in cities such as Beijing were offering financing for the exorbitant down payments designed cool down the overheating housing market, as well as working with banks to channel consumer loans to prospective home buyers.

Domestic media now reports that despite the crackdown launched just several months prior, various forms of semi-licit financing for home purchases remain commonplace in China’s major cities.

According to Securities Journal Chinese realtors and financial guarantor companies are teaming up with banks to offer home financing that combines mortgages with consumer loans, in order to help prospective house buyers make the exorbitant state-mandated down payments.

Reporters pursued phone inquiries with realtors in the greater Beijing metropolitan area, and discovered that deals advertised include “first home 65% mortgage + 5% consumer loan, “first home 60% mortgage + 10% consumer loan,” “second home 40% mortgage + 30% consumer loan” or “second home 20% mortgage + 50% consumer loan.”

While some realtors have promised a down payment of as little as 30% for home purchases, the latest regulations introduced by the Beijing municipal government in March 2017 stipulate that the down payment for second-time ordinary home buyers is 60%, or 80% for non-ordinary homes.

One source from a financial guarantor company said to Securities Journal that these exorbitant down payment requirements in tandem with strong demand have prompted lenders to temporarily re-introduce mortgage + consumer loan combination packages to high-end clients.

“This type of business also made an appearance several years ago…the current re-introduction has been going on for less than a month, and is expected to conclude after Chinese New Year. It’s mainly directed at higher quality clients.

“According to current policy the commercial bank loan threshold for second purchases of ordinary homes is 40%. The banks also allocate funds for another 30%, making up a 70% loan in total.

“The commercial loan part has a maximum term of 25 years, while the rate for second-home loans is 20% above the benchmark rate in accordance with current policy. The maximum term for the allocated capital part is 10 years, and its rate is 10% above the benchmark rate.

“The two loan applications are signed simultaneously, while the mortgage part is provided first, followed by the ‘added portion’ half a month later. The buyer only needs to negotiate with the seller for when the funds will be provided in order for it to all be okay.”