BEIJING: It is increasingly necessary for China to reduce interest rates on existing mortgages as soon as possible to revive consumer confidence, stabilise housing market expectations and meet the annual economic growth target, analysts say.

“The public is eagerly looking forward to existing home loan rate reductions, necessitating prompt policy responses,” said Central University of Finance and Economics’ Institute of Securities and Futures researcher Yang Haiping.

Lowering the rates can ease the financial burden on homebuyers and stimulate consumer spending, tapping into the policy space provided by the US Federal Reserve’s (Fed) interest rate cut, Yang noted, adding that a reduction of existing home loan rates may take place in October.

Following the Fed’s rate cut of 50 basis points (bps) last Wednesday, the loan prime rate, China’s market-based benchmark of lending rates remained unchanged last Friday, leading to market speculation that policy space may exist for lowering current mortgage rates.

With the widening gap between rates for new and existing mortgages having triggered early repayments of home loans, calls for lowering existing mortgage rates have gained traction since August.

Soochow Securities estimated that the gap between rates for new and existing mortgages is approximately 82 bps.

The balance of personal housing loans was 37.79 trillion yuan (US$5.36 trillion) by the end of June, a decrease of 400 billion yuan from a quarter earlier, according to the country’s central bank, the People’s Bank of China. 

 - China Daily