(Original title: Interpretation of the central bank’s new housing loan regulations: Keep personal housing loan interest rates basically stable)

On August 25, the People’s Bank of China issued an announcement on matters related to the interest rates of new commercial personal housing loans: Starting from October 8, the interest rates of new commercial personal housing loans will be based on the loan market quotation rate (LPR) of the corresponding period in the last month as the pricing benchmark plus points.

This move is to ensure the effective implementation of regional differentiated housing credit policies and maintain the basic stability of personal housing loan interest rates during the process of reforming and improving the LPR formation mechanism.

A few days ago, the central bank improved the LPR formation mechanism. One of the most prominent changes in the improvement of LPR this time is the quotation method, which is changed to be based on the open market operating interest rate - mainly the medium-term lending facility rate (MLF) plus points. The reform is mainly to improve the marketization of LPR, give full play to the guiding role of LPR on loan interest rates, promote the "two tracks into one" of loan interest rates, improve the efficiency of interest rate transmission, and promote the reduction of financing costs for the real economy.

After the reform, the new version of LPR has declined. At 9:30 on August 20, the revised LPR was released. The "new version" of the one-year LPR announced for the first time is 4.25%, which is 10 basis points lower than the original benchmark interest rate and 6 basis points lower than the "old version" LPR. The newly announced LPR over 5 years is 4.85%.

While the quoted interest rate of the new version of LPR has dropped, some people have asked, does this mean that the mortgage interest rate will also drop?

“One thing is for sure, the interest rate of mortgage loans will not fall.” Liu Guoqiang, deputy governor of the Central Bank, recently stated that for the real estate market, we must resolutely implement the requirements of the Political Bureau meeting of the Central Committee on July 30, adhere to the positioning of “houses are for living in, not for speculation”, implement long-term real estate management mechanisms, not use real estate as a short-term means of stimulating the economy, ensure the effective implementation of differentiated housing credit policies, and keep personal housing loan interest rates basically stable.

The central bank also stated in its announcement on the 25th that the interest rates on existing individual housing loans will still be based on the original contract. After the pricing benchmark is converted, the interest rate of newly issued personal housing loans nationwide shall not be lower than the LPR of the corresponding period (based on the LPR of more than 5 years on August 20, which is 4.85%); the interest rate of the second personal housing loan shall not be lower than the LPR of the corresponding period plus 60 basis points (based on the LPR of more than 5 years on August 20, which is 5.45%), which is basically equivalent to the current actual lowest interest rate level of personal housing loans in my country.

The announcement stated that the provincial branches of the People's Bank of China should follow the principle of "policing according to the city", based on the unified national credit policy, and based on changes in the local real estate market situation, determine the lower limit of the interest rate increase for the first and second commercial personal housing loans in the jurisdiction. Banking financial institutions should reasonably determine the specific value of points added to each loan based on the lower limit of points added.

It is understood that when borrowers apply for commercial personal housing loans, they can negotiate with banking financial institutions to agree on an interest rate repricing cycle. The minimum repricing period is 1 year and the maximum is the contract period. Each time the interest rate is repriced, the pricing basis is adjusted to the LPR of the corresponding period in the latest month.

E Yongjian, chief financial analyst at the Bank of Communications Financial Research Center, said that the central bank’s announcement has two focuses. First, the interest rates for new personal housing loans under the new mechanism, whether for the first or second home, are basically unchanged from before. Second, the central bank branches in various places will set a lower limit for the increase based on local conditions. As a result, new personal home loan interest rates have been able to remain stable, neither falling nor significantly increasing the interest burden. This measure will help prevent the real estate market from overheating while driving down corporate loan interest rates, and fully reflects the intention not to use stimulating real estate as a short-term stimulus. (Economic Daily-China Economic Net reporter Chen Guojing)