On August 25, the People’s Bank of China issued an announcement to adjust the interest rates for new commercial personal housing loans, which will be effective from October 8, 2019.

The adjustment is because after the reform and improvement of the loan market prime rate (LPR) formation mechanism, the pricing basis for personal housing loans also needs to be converted from the loan benchmark interest rate to LPR.

“The technical terminology is too strong and difficult to understand!” Many netizens said after reading the announcement, “Will a class representative come out and explain what it means?”

“Have mortgage interest rates increased or fallen?”

This is the question that netizens pay the most attention to.

According to the announcement, starting from October 8, 2019, the interest rate for newly issued commercial personal housing loans will be based on the loan prime rate (LPR) of the corresponding period in the last month as the pricing basis plus points.

Before October 8, 2019, commercial personal housing loans that have been issued and commercial personal housing loans that have been signed but not issued will still be implemented in accordance with the original contract.

On August 20, the National Interbank Lending Center released a new LPR for the first time. The one-year LPR was 4.25%, which was 10 basis points lower than the original benchmark interest rate and 6 basis points lower than the old LPR; the five-year and above LPR was 4.85%.

Before the implementation of the above-mentioned new policies, the current loan base interest rate for mortgage loans is: 4.75% for one to five years (inclusive), and 4.90% for more than five years. Since most mortgages have a term of more than five years, 4.90% has become a familiar benchmark interest rate for home loans.

That is, if calculated based on the loan period of more than 5 years, after the implementation of the New Deal, the lower limit of interest rate for first-time buyers will be 4.85%, which is 5 basis points lower than the previous benchmark interest rate of 4.90%.

However, in actual practice, currently, according to explicit or implicit regulations, the interest rate for first-home loans is generally no less than 10% of the benchmark interest rate, and the second-home loan interest rate is generally no less than 1.1 times the benchmark interest rate. The calculated values ​​are 4.41% and 5.39% respectively.

Since the "9.30" real estate market tightening policy in 2016, mortgage interest rate discounts have basically disappeared, and more measures have been taken to increase interest rates. Mortgage market data from 35 cities collected and monitored by Rong360 Big Data Research Institute shows that in July 2019, the national average interest rate for first-home loans was 5.44%, and the average interest rate for second-home loans was 5.76%.

In other words, the current bank’s actual mortgage interest rate is higher than the current benchmark mortgage interest rate (4.9%), and also higher than the interest rate lower limit of the upcoming New Deal (the lower limit of first-time home loan interest rate is 4.85%).

Will mortgage interest rates drop in the future?

The LPR has dropped, and the lower limit of the new mortgage interest rate is also lower than the previous benchmark interest rate. Doesn’t it mean that the mortgage interest rate has also dropped? In this regard, Liu Guoqiang, deputy governor of the central bank, said recently that the mortgage interest rate has changed from the reference benchmark interest rate to the reference LPR, but the final loanInterest rates should remain basically stable.

This central bank announcement also made it clear that in order to implement the positioning of "houses are for living in, not for speculation" and the long-term management mechanism of the real estate market, ensure the smooth and orderly conversion of pricing benchmarks, and maintain the basic stability of personal housing loan interest rates.

“According to the regulations of the central bank, if the LPR interest rate is lowered, the lowest interest rates for first and second home loans will naturally be lowered accordingly.” Li Wanfu, an analyst at Rong360 Big Data Research Institute, explained, but this only refers to the lowest interest rate. The actual interest rate will also be affected by regulatory policies and bank credit resources.

E Yongjian, chief financial analyst at the Bank of Communications Financial Research Center, said that first, the interest rates for newly issued personal housing loans under the new mechanism are basically unchanged; 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 avoids overheating of the real estate market and fully reflects the intention not to use stimulating real estate as a short-term stimulus.

Zhang Dawei, chief analyst of Centaline Real Estate, also said that under the new mechanism, the mortgage interest rate has not changed, and the stock and increase have basically remained unchanged. At present, mortgage interest rates and lending cycles in most cities are basically stable, with slight fluctuations, but the mainstream is stable.

“It is expected that the execution interest rate will be difficult to see a significant and general decline in the short term.” Li Wanfu believes that from the perspective of short-term actual interest rate levels, the New Deal will only have a slight impact on a very small number of the best customers, and will have little impact on the vast majority of home buyers.

One thing worth noting is that according to Li Wanfu’s calculations, after the implementation of the New Deal, the minimum interest rate for second home loans will increase from 5.39% to 5.45%. Yuan Chengjian, vice president of Zhuge Housing, believes that second-home mortgage interest rates may show an upward trend in the future, which will have a certain inhibitory effect on real estate market sales.

Yan Yuejin, Research Director of the Think Tank Center of E-House Research Institute, believes that judging from the situation in the second half of the year, considering that the policy is still tight, in fact the specific loan interest rate will only be raised, not lowered.

Future mortgage interest rates may vary from person to person

Yan Yuejin also said that the central bank’s interest rate reform cannot simply be understood as an increase or decrease in interest rates, but should be understood as the pricing of future loans will be more market-oriented.

According to the central bank’s announcement, the provincial branches of the People’s Bank of China, based on the unified national credit policy and changes in the local real estate market situation, determine the lower limit of the interest rate for the first and second commercial personal housing loans within their jurisdiction. Banking financial institutions should clarify the interest rate pricing rules for commercial personal housing loans based on the lower limit of the point addition determined by the self-regulatory mechanism for market interest rate pricing at each provincial level, combined with factors such as the institution's operating conditions, customer risk status, and credit conditions, and reasonably determine the specific point addition value for each loan.

In Yan Yuejin’s view, the calculation of future mortgage loans may vary from person to person, amount to amount, and market to market. In the actual operation process, some cities where housing prices have risen too fast will be able to increase the base point appropriately in the future under the standards of the central bank. Such increases will eventually affect the loan interest rates of specific commercial banks' mortgage departments.

In addition, according to the new policy, when borrowers apply for commercial personal housing loans in the future, they can negotiate with banking financial institutions to agree on an interest rate repricing cycle, with the minimum repricing cycle being one year.

Yan Yuejin believes that it is clear that home buyers can agree on the interest rate repricing cycle, which means that the calculation of mortgage loan interest rates for future home loans can be fine-tuned based on the needs of home buyers, but the pricing cycle needs to be agreed in advance, and it also needs to beSpecify the base rate for pricing. This regulation will help form more diverse loan interest rate calculation methods, and will also become an area where bank mortgage staff will need to actively coordinate with home buyers.