First Home Mortgage Rates in Major Chinese Cities Sink Beneath 4% Threshold after Spring Festival

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First mortgage home loan rates have continued to fall in cities around China following the conclusion of the nationwide Spring Festival vacation.

Multiple banks in nearly 20 cities including Fuzhou, Zhengzhou, Tianjin, Shenyang and Xiamen have lowered the floor on first-home loan interest rates since the end of the Spring Festival, with some cities seeing reductions to as low as 3.7%.

The move comes after a dozen cities made reductions prior to the Spring Festival, including Tangshan, Taiyuan, Lishui, Jiujiang, Zhuhai, Jiangmen, Zhaoqing, Zhongshan, Huizhou, Zhanjiang, Shaoguan and Yunfu.

Sources from regional banks said that the declines arrive amidst adjustments made by local governments to their policies governing first home loan interest rates, at the behest of instructions from the Chinese central bank.

On January 5, the central bank and the China Banking and Insurance Regulatory Commission issued a directive on the establishment of a long-term mechanism for the dynamic adjustment of first home loan interest rate policies.

According to the notice, cities where the sales price of newly built commercial housing have declined for three consecutive months in month-on-month or year-on-year terms are permitted to maintain, lower or cancel the lower limit of local first-home loan interest rates in phases.

The number of cities to reduce the floor on first-home loan interest rates has gradually increased. A personal loan manager from a large state-owned bank in Zhuhai said to Securities Daily that he had received an official notice mandating that the minimum interest rate for first-home loans can be set at 3.7%.

“I just received a notice of the reduction in the past few days, and the interest rate on first-home loans has dropped from 4.1% to 3.8%,” said a source from of a bank branch in the Fujian province city of Xiamen.

The northern Chinese cities of Shenyang and Zhengzhou have also reduced first home loan interest rates. Multiple banks in Shenyang have reported that from February 1 to April 1 they will lower the first-home loan interest rate to 3.9%, while some banks have already made these changes ahead of schedule.

Banks in the Henan-province capital of Zhengzhou have indicated that the interest rate for first home loans will fall from 4.1% to 3.8%.

Chinese cities that had previously implemented policies for the dynamic adjustment of first-home loan interest rates were primarily concentrated in third- and fourth-tier cities. This time however, more prominent first and second-tier cities including Zhuhai, Xiamen, Shenyang, Fuzhou and Zhengzhou have also started to make dynamic adjustments to the first-home loan interest rates.

Wang Qing (王青), an analyst from Golden Credit Rating, said to Securities Daily that the expansion of dynamic adjustments to the first-home loan interest rate from third- and fourth-tier cities to some second-tier and new first-tier cities indicates that these more prominent cities hope to boost the real estate market from the demand side

Wang also said that in the first quarter and even throughout the first half of this year, more qualified cities will lower the ceiling for first-home loan interest rates, which will help to drive the stabilization and recovery of the property market.