Chinese Banks Seek to Stymie Wave of Early Mortgage Repayments as Interest Rates Drop, Regulators Intervene

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China’s top banking regulators have expressed concern about efforts by commercial lenders to stem a wave of early mortgage repayments by borrowers hoping to take advantage of declining interest rates.

The Beijing Daily reports that the wave of advance mortgage repayments that started in 2022 has persisted into the new year, with borrowers now “lining up to make repayments” instead of “lining up to take out loans.”

According to its report, some commercial banks have sought to stem the wave of repayments, by measures including delaying appointment schedules with clients and setting limits on repayment amounts.

The issue has since prompted intervention from China’s top banking regulators. On 9 February, the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) convened a meeting with commercial lenders, calling for them to “strengthen the concept of customer-centricity, protect the legitimate rights and interests of customers, improve service quality, and do an effective job of providing customer prepayment services in accordance with contracts.”

PBOC and CBIRC also expressed concern about Chinese borrowers taking advantage of the lower rates on business and consumer loans to make repayments on their mortgages, even amidst declines in home loan rates at the behest of regulators.

Figures from the Beike Research Institute (贝壳研究院) indicate that in January the average interest rate for first home loans across 100 Chinese cities was 4.10%, while the average interest rate for second home-loans was was 4.91%, for year-on-year (YoY) declines of 146 basis points and 93 basis points respectively.

As early as August 2022 however, the minimum annual interest rate for consumer loans offered by many Chinese commercial banks had dropped below 4.0%. Since the beginning of 2023, some Chinese banks have started to market consumer loans with interest rates of as little as 3.2%, while the interest rates on business loans at many banks is as low as 3.5%.