As 2023 draws to a close, most homebuyers will see their mortgages undergo an annual repricing on the first day of the new year.
According to the latest LPR (loan prime rate) with a maturity of more than 5 years in December, the interest rate will be reduced by another 10 basis points (BP) for mortgages with a repricing date of January 1 next year and processed before June 20 this year.
During the year under review, the 1-year and 5-year LPRs cut interest rates twice and once respectively, with a cumulative rate cut of 20BP and 10BP. For housing loans, compared with the interest rate cut driven by the reduction of the 5-year LPR, the most important thing during the year was the adjustment of the interest rate of the existing housing loan. According to the agency's calculations, the current interest rates on the first and second home loans in 100 cities have continued to hit a new low since 2014, especially in December, the relaxation of the Beijing-Shanghai property market policy has significantly driven the mortgage interest rates in first-tier cities downward.
After a new round of centralized cuts in the deposit rate in December, a number of institutions told Yicai that there is still room for the deposit rate to fall next, and it is not ruled out that the MLF (medium-term lending facility) will further cut interest rates in the first half of next year to guide the LPR quotation to be lowered.
The adjustment of the interest rate of the existing mortgage was the most important part of the year
The so-called repricing date refers to the date on which the borrower of a floating rate loan agrees with the bank on the date of interest rate adjustment, of which the repricing date of an individual mortgage is January 1 of each year, or the date corresponding to the loan disbursement date (corresponding date) every year, with the former being the majority.
Since the LPR reform in October 2019, most of the mortgage interest rate pricing in mainland China has changed to anchor LPR, that is, LPR plus point mode, and some first-time home loan borrowers who choose fixed interest rates have also switched to LPR plus point mode after the adjustment of existing mortgage interest rates in September this year.
On January 1 next year, the interest rate of the existing mortgage anchored to the LPR will be recalculated and determined according to the LPR interest rate of the corresponding term in the latest month (December) + the fixed markup agreed in the contract. The latest LPR quotation for more than 5 years disclosed by the central bank on December 20 was 4.2%.
Looking back at the changes in LPR over 5 years since the beginning of this year, it was only lowered once on June 20, with a range of 10BP. This also means that the latest mortgage rate will be updated from 4.3% to 4.2% after the repricing.
Looking at the long-term LPR adjustment since 2019, the quotations of LPR with a maturity of more than 5 years on December 20, 2019, December 20, 2020, December 20, 2021, December 20, 2022, and December 20, 2023 were 4.8%, 4.65%, 4.65%, 4.3%, and 4.2%, respectively, with a cumulative decline of 60BP.
Among them, in the face of the deep adjustment of the real estate industry, the LPR of more than 5 years in 2022 will be asymmetrically lowered more than expected, with a cumulative decline of 35BP during the year. During the same period, the 1-year LPR fell by 15BP.
However, this year, with the disparity in interest rates between existing loans and new loans, the focus of the housing loan policy has shifted to the adjustment of the existing first home loan. On August 31, the People's Bank of China and the State Administration of Financial Supervision issued two notices, and the interest rate of the existing housing loan was officially adjusted - from September 25, financial institutions will issue new loans to replace the first set of commercial personal housing loans in the stock, or negotiate to change the interest rate level agreed in the contract.
From the perspective of the implementation situation, the adjustment of the interest rate of the stock mortgage mainly adopts the latter method, and the adjusted interest rate of the stock mortgage must be in line with the local real estate policy at the time of loan issuance, that is, it shall not be lower than the lower limit of the interest rate policy of the first home loan in the city where it is located at that time.
According to the data disclosed by the central bank, from September 25 to October 1, in the first week of policy implementation, 98.5% of eligible first stock mortgage interest rates were lowered. As of the end of September, more than 22 trillion yuan of existing housing loan interest rates have been lowered, and the adjusted weighted average interest rate is 4.27%, with an average decline of 73BP, reducing borrowers' interest expenses by 160 billion ~ 170 billion yuan per year, benefiting about 50 million households and 150 million people.
First-tier cities have been relaxed, and mortgage interest rates in 100 cities have continued to hit new lows
In addition, the central bank has adjusted the lower limit of the first home loan interest rate many times, and the mortgage interest rate has generally shown a downward trend in the past two years, especially the first home loan guided by policy priorities.
However, in the context of city-specific policies, the lower limit of the mortgage interest rate implemented between regions or in different periods in the same region varies greatly, and the lower limit policy of the first home loan interest rate announced by the branches of the central bank on September 1 shows that the policy segments are different, among which the lower limit of the first home loan interest rate in many places has been reduced to a negative value, which is at most 60BP lower than the LPR.
According to the "Report on the Implementation of China's Monetary Policy for the Third Quarter of 2022", the interest rate of commercial personal housing loans in mainland China adopts a "three-tier pricing mechanism": first, at the national level, the People's Bank of China and the China Banking and Insurance Regulatory Commission (now the State Administration of Financial Regulation) determine the lower limit of the loan interest rate policy at the national level, and second, at the local level, the city governments follow the "city-specific policies" on the basis of the national policy bottom line Third, at the level of commercial banks, commercial banks negotiate with borrowers to determine the specific interest rate level, taking into account factors such as capital cost and credit risk.
According to the latest data from the central bank, as of the end of September, among the 343 cities (prefecture level and above) in the country, 119 cities that meet the conditions for relaxing the lower limit of the first home loan interest rate policy have relaxed the lower limit, of which 95 have lowered the lower limit of the first home loan interest rate, and the lower limit implemented in these cities is 10~40BP lower than the national lower limit; 24 have canceled the lower limit. In September, the weighted average interest rate of newly issued personal housing loans was 4.02%, down 32BP year-on-year.
In addition to the lower limit of the interest rate at the time of issuance, the latest mainstream interest rate level of the city where the interest rate is located and the changes in the recognition criteria for the first home will affect the adjustment space of the interest rate of the existing housing loan. According to the CICC research report, in the second- and third-tier cities where mortgage loan markups have been significantly reduced, borrowers have benefited from more obvious interest rate adjustments for existing mortgages.
Taking a certain place in Hubei as an example, according to the reporter's understanding, some of the stock mortgages handled last year and this year in line with the adjustment policy have adjusted interest rates of 4% and 3.9%. This also means that after the repricing on January 1, the mortgage rate of such borrowers will fall further to 3.9% and 3.8%.
In addition to promoting the reduction of the interest rate of the stock of the first home loan and the dynamic adjustment of the first home loan interest rate policy on a quarterly basis, the central bank also promoted the reduction of the lower limit of the second home loan interest rate by 40BP this year, from LPR+60BP to LPR+20BP.
According to statistics from Huatai Securities, the average interest rates of the first and second home loans in Baicheng fell by 1BP and 2BP to 3.86% and 4.41% respectively in December compared with November, both hitting new lows since 2014. In terms of cities, only the first-tier cities have a first-tier home loan interest rate higher than 4%, and only 7 cities have a second home loan interest rate higher than 4.4%.
According to the research report of Guojin Securities, benefiting from the new policy of the Beijing-Shanghai property market, the first set of interest rates in first-tier cities in December was reduced by 25BP month-on-month, and the second set of interest rates was reduced by 34BP month-on-month. Previously, on December 14, Beijing and Shanghai, which are regarded as the vane of the property market, unanimously relaxed the policy, in terms of mortgage interest rates, the first home loan interest rate in both places was reduced by 45BP, the second home loan interest rate was reduced by 45BP~50BP in Beijing, and the interest rate in Shanghai was reduced by 75BP~85BP.
How much downside there is in the LPR next year
During the year, there were two MLF interest rate cuts in June (10BP) and August (15BP), and the central bank cut the reserve requirement ratio by 0.25 percentage points in September, which in turn promoted the LPR cut.
However, the macroeconomic recovery still needs to be consolidated, especially the pace of real estate recovery is not as expected, many enterprises are still facing financing bottlenecks, and the sales side continues to be sluggish. In addition, the additional issuance of government bonds tested the liquidity of funds, and the market once had high expectations for RRR and interest rate cuts in the fourth quarter.
However, the latest LPR continued to stand still in December. By the end of December, a new round of deposit interest rate cuts had landed first. This is the third deposit rate cut this year, and the scope and intensity are greater than the previous period.
A number of industry insiders told reporters that the adjustment of deposit interest rates at the end of the year when the impact of savings was "off to a good start", and the driving factors included the continued trend of deposit regularization, the increase in credit supply by banks, and the continuous narrowing of net interest margins. In addition, the LPR has not been lowered as scheduled, which will ease the pressure on banks from both the asset and liability ends, and free up more space to support the real economy.
According to CICC's calculations, the latest round of deposit rate adjustment will drive down the weighted average interest rate of time deposits by about 15BP, which is higher than the deposit rate cuts in September 2023 (about 9BP), June 2023 (about 3BP) and 2022 (10~12BP). Based on the calculation of the scale of fixed deposits of about 150 trillion yuan, it can save 225 billion yuan (annualized) in bank interest expenses every year, which is comparable to the impact of the reduction of interest rates on existing housing loans.
Regarding the imbalance of policies on the asset-liability side in the short term, some institutional sources told reporters that in the long run, the interest rate on loans in the early stage has dropped a lot, and the short-term situation cannot be viewed one-sidedly.
Since 2019, in addition to the 60BP decline in long-end LPR, the 1-year LPR has also gradually decreased from 4.15% in December 2019 to 3.45% in December this year, a decline of 70BP. Among them, the largest decrease of 30BP in 2020, and the decline of 5BP, 15BP, and 20BP in 2021, 2022, and 20BP in 2023 respectively.
The central bank also pointed out in the latest monetary policy implementation report that a series of interest rate policies have achieved remarkable results, and the effect of interest rate transmission has been significantly enhanced. According to the data, in addition to personal loans dominated by housing loans, the weighted average interest rate of new corporate loans issued in September was 3.82%, down 18BP year-on-year, at the lowest level in history.
Ming Ming, chief economist of CITIC Securities, believes that considering the impact of the accumulated events since June, superimposed on the adjustment of the deposit interest rate, the possibility of a downward trend in long-end LPR quotations has increased, but the magnitude of the adjustment may be limited. Combined with the monetary policy tone of the Central Economic Work Conference's "flexible, moderate, precise and effective", it is not ruled out that the MLF will further cut interest rates in the first half of next year to guide the LPR quotation down.
Another institutional person told reporters that there is still room for the deposit rate to fall next year, and there is still room for LPR to fall by 20~30BP. However, under the interest rate transmission mechanism of "market interest rate + central bank guidance → LPR → lending rate" and "LPR + treasury bond yield → deposit rate", the further downside of LPR and new loan interest rates will be narrowed.
According to Lin Yingqi, a banking analyst at CICC, the 10BP cut in the deposit interest rate within one year is the first of the five rounds of deposit interest rate cuts, marking the beginning of a comprehensive downward trend in the subsequent deposit interest rate curve. Assuming that the LPR of 1 year and 5 years or more will be reduced by 10BP at the beginning of next year, the impact of this deposit rate adjustment can be fully hedged, and if the future deposit rate decline is similar to this time, the impact of the LPR reduction on the interest rate spread will turn from negative to close neutral.