For the first time on record, the inversion between personal housing loan rates and corporate loan rates has come to an end.
According to the latest data from the People's Bank of China, interest rates on new loans remained at historically low levels in March 2024. Among them, the weighted average interest rate of newly issued corporate loans in March was 3.75%, 1 basis point lower than the previous month and 22 basis points lower than the same period last year, and the interest rate of newly issued personal housing loans was 3.71%, 15 basis points lower than the previous month and 46 basis points lower than the same period last year.
Notably, this is the first time since public records that interest rates on new personal housing loans have been lower than the weighted average interest rate on new corporate loans.
For the first time, the interest rate on personal housing loans is lower than the interest rate on corporate loans
In the second quarter of 2020, the People's Bank of China (PBoC) disclosed for the first time the weighted average interest rate on corporate loans. At that time, the report showed that in June 2020, the weighted average interest rate of corporate loans was 4.64%, a decrease of 0.48 percentage points from December last year, significantly exceeding the decline in LPR in the same period, which is conducive to reducing the financing cost of enterprises.
Since then, the weighted average interest rate of new corporate loans has been steadily reduced. According to the PBOC's quarterly monetary policy implementation report, the weighted average interest rate on corporate loans remained around 4.5%-4.65% from June 2020 to December 2021.
Entering 2022, the weighted average interest rates of all loans have decreased.
The first monetary policy implementation report of the year (Q1 2022) pointed out that in recent years, the People's Bank of China (PBoC) has achieved remarkable results in promoting the improvement of the modern monetary policy framework by improving the market-oriented interest rate formation and transmission mechanism.
In August 2019, the People's Bank of China (PBoC) issued an announcement on the reform and improvement of the formation mechanism of the loan prime rate (LPR), which is formed by the quoting banks based on the market-based quotation based on the market interest rate trend and with reference to the medium-term lending facility (MLF) interest rate.
"(After the LPR reform) not only improves the degree of marketization of loan interest rates, but also forms a transmission mechanism of 'market interest rate + central bank guidance→LPR → lending rate', and the transmission efficiency of monetary policy has been significantly improved. The People's Bank of China pointed out that since then, the interest rate of new loans has basically been set with reference to the LPR.
In the same report, the People's Bank of China also said that since the LPR reform in August 2019, the weighted average interest rate of corporate loans has dropped from 5.32% in July 2019 to 4.36% in March 2022, with a cumulative decline of 0.96 percentage points, exceeding the 0.55 percentage point decline in the LPR in the same period.
In terms of personal housing loan interest rates, in June 2022, the interest rate on newly issued personal housing loans averaged 4.62%, which was lower than the weighted average interest rate of general loans for the first time since public records began.
The People's Bank of China pointed out that in 2022, the cost of corporate financing and personal consumption credit fell steadily, with the weighted average interest rate of corporate loans for the whole year at 4.17%, down 0.34 percentage points year-on-year, and the average interest rate on new personal housing loans issued in December was 4.26%, down 1.37 percentage points from December last year.
Since then, the cost of corporate financing and personal consumption credit has continued to decline, and by September 2023, the weighted average interest rate of new corporate loans has dropped to 3.82%, and the weighted average interest rate of new personal housing loans has reached 4%, reaching 4.02%. By December 2023, the weighted average interest rate of new corporate loans and the weighted average interest rate of personal housing loans will both fall below 4%.
In March 2024, for the first time since public records began, the interest rate on new personal housing loans was lower than the weighted average interest rate on new corporate loans, reaching 3.71%.
There is still room for the interest rate of personal housing loans to be reduced
The continuous reduction in the interest rate of new personal housing loans is the result of the combined action of the market and policies.
From a policy perspective, in November 2022, the People's Bank of China and the former China Banking and Insurance Regulatory Commission jointly issued the "Notice on Doing a Good Job in Supporting the Stable and Healthy Development of the Real Estate Market in the Current Financial Sector", also known as the "16 Financial Articles", which clearly stated that all localities are supported to implement differentiated housing credit policies on the basis of national policies and city-specific policies, reasonably determine the down payment ratio of local personal housing loans and the lower limit of loan interest rate policies, and support the demand for rigid and improved housing.
In January 2023, the People's Bank of China, together with the former China Banking and Insurance Regulatory Commission, issued the Notice on Establishing a Long-term Mechanism for the Dynamic Adjustment of the Interest Rate Policy for Personal Housing Loans for Newly Issued First Homes, proposing that cities where the sales prices of newly built commercial residential buildings have declined for three consecutive months month-on-month and year-on-year can maintain, reduce or cancel the lower limit of the local interest rate policy for the first home loan in stages. It provides policy space for the reduction of personal housing loan interest rates.
In September 2023, the People's Bank of China (PBoC) and the State Administration of Financial Supervision (SFA) further made policy arrangements, and 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. Since then, banks have successively announced the adjustment rules.
According to data from the People's Bank of China, as of the end of September 2023, more than 22 trillion yuan of existing housing loan interest rates have been lowered, with an adjusted weighted average interest rate of 4.27%, an average decrease of 73 basis points, and an annual reduction of 160 billion to 170 billion yuan in interest expenses for borrowers, benefiting about 50 million households and 150 million people. At the same time, 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 10-40 basis points lower than the national lower limit, and 24 have canceled the lower limit.
Recently, the number of cities that have phased out the lower limit of the interest rate on commercial personal housing loans for the first home has shown a significant growth trend. More than 10 cities, including Qingdao, Nanchang, Jining, Chaozhou, Yantai and Shanwei, announced that from April 1, the lower limit of the interest rate on commercial personal housing loans for the first housing will be cancelled in stages.
At present, industry researchers believe that there is still room and possibility for the interest rate of personal housing loans to be lowered in the future.
Chen Wenjing, director of market research at the China Index Research Institute, believes that on the whole, reducing mortgage interest rates is one of the important measures to promote the release of housing demand, and it is expected that more cities will follow suit.
Wang Qing, chief macro analyst of Oriental Jincheng, also said that the next step to promote the real estate industry to achieve a soft landing, in addition to the orderly relaxation of purchase restrictions, the key is to guide the effective downward trend of residential mortgage interest rates, and to release a clear policy signal to the market, that is, before the property market stabilizes and warms up, the process of reducing mortgage interest rates will not stop, and the reduction will be larger and larger. This is a key move to reverse the expectations of the property market at present, and it is also the main force of the next policy to stabilize the property market. In February, the quotation of LPR with a maturity of more than 5 years was sharply reduced, which has released a policy signal in this regard.
Editor-in-charge: Wan Jianyi
Proofreading: Gao Yuan
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