BEIJING (Reuters) – The People’s Bank of China (China’s central bank) told commercial banks on Sunday to begin cutting interest rates on all outstanding home loans, in a sweeping move to help ease the mortgage burden on households hurt by the economic slowdown.
All commercial banks must, in batches, cut interest rates on existing real estate loans by October 31 to at least 30 basis points below the prime loan rate (LPR), the central bank’s benchmark rate for loans, a People’s Bank of China statement said. Real estate.
Over the past year, China implemented a series of real estate stimulus measures. Most local governments, with the exception of some major cities including Beijing and Shanghai, have eliminated minimum limits on mortgage rates. But the measures have struggled to boost sales or increase liquidity in a market shunned by buyers.
Previous reductions in mortgage interest rates have primarily benefited new homebuyers, leaving existing homeowners with loans with higher interest rates. This has led to households rushing to repay existing mortgage loans early, further restricting household spending and consumption.
“As market-oriented reforms on interest rates continue to deepen, and the relationship between supply and demand in the real estate market undergoes major changes, the current mortgage rate pricing mechanism has revealed some shortcomings,” the People’s Bank of China said in its statement.
“With the public showing strong responses (to the situation), the mechanism needs urgent adjustments and improvements,” the People’s Bank of China added.
The outstanding value of individual real estate loans reached 37.79 billion yuan ($5.39 billion) at the end of June, down 2.1% year-on-year, according to official data.
The widely expected decision to cut mortgage interest rates aims to revive the crisis-hit real estate market in China and ease cautious consumer sentiment that has pushed the world’s second-largest economy to the brink of recession.
China’s real estate sector, once one of the pillars of the economy, has oscillated from one crisis to another since 2021, when a regulatory crackdown on high leverage among developers led to a liquidity crisis.
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