Mortgage rates are repriced and bank spreads are under pressure again
"Dear customers, due to the adjustment of interest rates, from January 1, 2024, the repayment amount of the loan with the tail number *** of your CCB loan account will be adjusted to 3299.81 yuan per period, please repay the loan on time and in full so as not to affect your credit history, please consult 95533 for details. ”
On January 2, Mr. Chen received a text message from CCB reminding him that the mortgage execution interest rate had been adjusted from 4.3% to 4.2% on January 1, 2024, that is, the monthly repayment was reduced from 3,340.81 yuan to 3,299.81 yuan, which is 41 yuan less. "Last year, the LPR was too 'stingy'. Mr. Chen said. In 2023, the five-year LPR (Loan Prime Rate), which affects the benchmark for mortgage interest rates, fell by 10 basis points in June. "The 10 basis point reduction is like a drizzle, but fortunately, the adjustment of the interest rate of the first housing loan last year has reduced some of the pressure on us to repay the loan. Do you really hope that the LPR can be lowered several times in 2024, and there is a chance that it will fall below 4%?" he asked the reporter rhetorically.
Ming Ming, chief economist of CITIC Securities, believes that from the perspective of the current economic repair demand and real interest rates, there is a high probability of interest rate cuts in the first quarter of this year, and the possibility of RRR cuts is not ruled out. A research report by China Securities Construction Investment predicts that due to factors such as the repricing of existing mortgages and the reduction of LPR, the bottoming period of interest rate spreads in the banking industry will be extended again, and in the first half of 2024, interest rate spreads of most banks will still have downward pressure.
Mortgage repricing
Mr. Chen told reporters that this is the third time he has adjusted the mortgage interest rate, and it is also the smallest one.
In 2017, Mr. Chen bought his first house in his hometown of Kaifeng City, Henan Province, with a loan of 660,000 yuan for 30 years and an interest rate of 5.88% (20% above the benchmark interest rate of 4.9%). He remembers that in 2020, the mortgage was adjusted from a fixed interest rate to a floating interest rate linked to the LPR, which was lowered from 5.88% to 5.38%, and the monthly payment was reduced by about 200 yuan.
On August 31, 2023, the People's Bank of China and the State Administration of Financial Supervision and Administration issued the Notice on Matters Related to Reducing the Interest Rate of the Stock First Home Loan, stating that from September 25, 2023, borrowers of commercial personal housing loans for the first housing in stock can apply to the lending financial institution, and the financial institution will issue a new loan to replace the commercial personal housing loan for the first housing in stock. Shortly thereafter, CCB also issued the Announcement of CCB on Clarifying the Specific Matters Concerning the Interest Rate Adjustment of the First Housing Loan in Stock Units, pointing out that if the interest rate is issued before October 7, 2019 (inclusive), the adjusted interest rate will be implemented according to the LPR interest rate of the corresponding term (the term of the original loan contract).
On September 25, 2023, the mortgage interest rate adjustment that Mr. Chen was looking forward to was landed, dropping from 5.38% to 4.3%, and the monthly payment amount was reduced from 3,710.28 yuan to 3,340.81 yuan, with a monthly repayment of 369.47 yuan. Combined with the 41 yuan reduction in the mortgage interest rate adjustment in January this year, his monthly payment has decreased by a total of 410.47 yuan, a decrease of 4,925.64 yuan per year. Mr. Chan has 24 years left in his loan tenure, so the loan repayment amount can be reduced by a total of $118215 after the two interest rate adjustments. That's a lot of money for the average working family.
Some existing mortgages have ushered in a repricing, and many people, like Mr. Chen, choose January 1 as the "repricing date" of their mortgages every year, but there are also some people whose mortgage repricing date is not January 1. Mr. Liu, who bought a house in Beijing, has not yet received the SMS notification of the relevant mortgage interest rate adjustment, and the loan interest rate on the bank APP is still 4.85%, which has not been adjusted for the time being. He said that the mortgage disbursement date is January 10, and it is estimated that the interest rate reduction will not be available until February 10.
Ms. Zhang, who took out a loan to buy a house in Foshan, also told reporters that on January 1, her mortgage interest rate was not adjusted. In February 2023, Ms. Zhang borrowed 800,000 yuan from Foshan Agricultural Bank and chose to repay the loan with equal principal and interest for 30 years. On October 25, 2023, her mortgage interest rate was adjusted once, and the adjusted execution interest rate was 4.1%, and the monthly payment was reduced from 4,351.96 yuan to 4,166.79 yuan, and on December 11, 2023, her mortgage interest rate was lowered to 4.0%, and the monthly payment was further reduced to 3,968.34 yuan.
Bank spreads continue to be under pressure
According to the Announcement on Operational Matters Concerning the Reduction of the Interest Rate of the First Housing Loan issued by the Agricultural Bank of China For the first set of personal housing loans (including loans that have been signed but not yet disbursed) issued between May 15, 2022 (inclusive) and August 31, 2023 (inclusive), the interest rate level will be adjusted to the lower limit of the national first home loan interest rate policy, that is, the LPR corresponding to the original loan contract term minus 20 basis points, and if the lower limit of the first home loan interest rate policy in the city where the loan is issued is higher than the LPR minus 20 basis points corresponding to the original loan contract term, the lower limit of the local first home loan interest rate policy at the time of issuance shall be implemented.
A personal loan manager of the Agricultural Bank of China told reporters that the two centralized adjustment of the interest rate of the stock mortgage may be an adjustment of the increase in the loan market prime rate (LPR), and it will be implemented according to the lower limit of the local first home loan interest rate policy in Foshan at the time of issuance.
Generally speaking, mortgage interest rate = LPR + basis points (similar discount number). Yan Yuejin, research director of the E-House Research Institute, told reporters that the five-year LPR interest rate will be lowered in 2023, so some home buyers who previously chose to link to the LPR floating interest rate will have a decrease in mortgage interest rates this year. For new home buyers, if the banks themselves in some cities have loose policies, then there is a possibility of further reduction in mortgage interest rates.
Entering 2024, some cities have phased out the lower limit of the first home loan interest rate. On January 2, the official platform of the Dongguan Municipal Party Committee and Municipal Government, "Dongguan Release", issued a document stating that from January 1, 2024, Dongguan City will implement the phased cancellation of the lower limit of the interest rate of commercial personal housing loans for the first housing in the jurisdiction, and the specific housing loan interest rate will be determined by each commercial bank in accordance with the principles of marketization and legalization. This means that the lower limit of the existing first home loan interest rate in Dongguan, LPR-20bp (basis points), may be broken. According to feedback from a number of commercial banks in Foshan, the new policy has been officially implemented on January 1, 2024.
Guo Qiwei, a banking analyst at Huafu Securities, believes that the policy of reducing the interest rate of the first housing loan in September 2023 will be introduced, although the interest rate reduction of the stock housing loan has been completed in 2023, but because the timing of the reduction is the fourth quarter of 2023, the impact on the interest margin in 2023 will be diluted throughout the year, and the impact of the interest rate spread will be further manifested in 2024.
The above-mentioned China Securities Construction Investment Research Report pointed out that for the repricing of mortgage loans, assuming that half of them are repriced in January and the rest are repriced on average in the remaining 11 months, the repricing range of mortgage loans is expected to be -10bps (basis points). According to estimates, the LPR repricing is expected to affect the net interest margin of listed banks by about 2 basis points, of which the impact on state-owned banks, joint-stock banks, urban commercial banks and rural commercial banks is 2.8 basis points, 1.7 basis points, 1.7 basis points and 1.4 basis points respectively.
The Central Financial Work Conference proposed to "increase policy implementation and work promotion, maintain reasonable and abundant liquidity, and continue to reduce financing costs"; the People's Bank of China's monetary policy implementation report for the third quarter of 2023 pointed out that "enhance the guidance of LPR on real lending rates and promote the steady and moderate reduction of financing costs in the real economy"; and the Central Economic Work Conference proposed to "promote the steady and moderate reduction of comprehensive social financing costs".
Ming Ming, chief economist of CITIC Securities, believes that around the Spring Festival is often an important window for the central bank to cut the reserve requirement ratio and interest rates, and there is a high probability of interest rate cuts in the first quarter of 2024, and the possibility of RRR cuts cannot be ruled out. In terms of rhythm, there is a possibility that interest rate cuts will land before and after the Spring Festival.
"The economic recovery still needs to be substantially rebounded in demand, and it is necessary to guide the financing rate downward; although the deposit rate cut provides room for the reduction of real financing costs, there is a time lag in considering the effect, and the current policy rate may still need to be lowered." At the end of 2023, large state-owned banks and joint-stock banks have lowered their deposit interest rates, which provides more space for financial concessions to the real economy to a certain extent, but considering that there is still a time lag in the transmission of deposit interest rate reductions to the downward trend of real financing costs, it is still necessary to reduce policy interest rates in the short term to guide the rapid decline of broad-spectrum interest rates and stimulate the investment demand of market entities. ”
The China Securities Construction Investment Research Report predicts that at least until the first half of 2024, most banks' interest rate spreads will still be under downward pressure. Against the backdrop of pressure on industry interest margins, only some rural commercial banks with a small proportion of mortgages and high-quality banks with effective control at both ends of assets and liabilities and balanced volume and price are expected to be the first to bottom. Affected by factors such as the repricing of existing mortgages, the decline of LPR, and the extension of interest rate cuts on some local debts, the bottoming period of interest rate spreads in the banking industry has lengthened again. Starting from the currently known possible factors, considering the impact of the reduction of the existing mortgage rate, the repricing of LPR, the impact of the reduction of the deposit fixed-term and the deposit listing rate, and the extension of the surrender interest rate in some cities, the roughly calculated decline in the interest rate spread of listed banks in 2024 may be around 12 basis points.