China’s Banking Regulators Cancel Floor on Mortgage Interest Rates for Municipal Authorities

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China’s top banking regulators have given carte blanche to municipal government to determine the floor on interest rates for first-home loans independently of the central government.

On 29 September the Chinese central bank and the China Banking and Insurance Regulatory Commission (CBIRC) announced that they would permit certain municipal governments to independently maintain, reduce or cancel the floor on interest rates for new first home loans issued within their jurisdictions before the end of 2022.

“The unveiling of this policy measure is of benefit to supporting the effective and sufficient use of policy tools by municipal governments that are tailored for local conditions and expediting the stable and healthy development of the real estate market,” the authorities said in a Notice.

“Within the local policy scope, banks and customers can negotiate and confirm specific interest rate levels for new first-home loans, which is of benefit to reducing the interest expenditures of households and better supporting inelastic demand for housing.”

On the same date, a routine meeting of the Chinese central bank’s monetary policy committee called for “reducing the cost of personal consumer loans” and “the effective and sufficient use of policy tools that are tailored for local conditions, and support for inelastic demand for housing.”

Previously, banks in China were not permitted to make first home loans whose interest rates were lower than the benchmark loan prime rate (LPR), which currently stands at 4.3% for tenors of five or more years. They are not permitted to make second-home loans whose interest rates are less than the LPR plus 60 basis points.