China set to cut rates on over $5 tn of mortgages this month

China is poised to cut interest rates on more than $5 trillion of outstanding mortgages as early as this month, according to people familiar with the matter, as it accelerates a move to reduce the borrowing costs for millions of families to spur consumption.

Some banks are making final preparations to get ready for the upcoming adjustments on mortgage rates, said the people, asking not to be identified discussing a private matter. Some homeowners may enjoy up to 50 basis points of immediate rate reduction, one of the people said. The timeline has yet to be finalised and could still change, said the people. The People's Bank of China and the National Financial Regulatory Administration didn't respond to requests for comment.

Bloomberg News reported earlier this month authorities are mulling a plan to allow borrowers to renegotiate terms with their current lenders before January, when banks typically reprice mortgages. The proposed cuts will likely come in two steps totaling about 80 bps, sources said.


Policymakers are ramping up a push to ease households' financial burden amid weak domestic spending and worsening deflation risk. While China has pushed average mortgage costs to a record low this year, most families didn't benefit as banks won't reprice existing loans until next year. The disparity has irked some homeowners and fuelled a wave of early mortgage payments.

The move also comes as a growing number of Wall Street analysts are predicting China may miss its economic growth goal of about 5% this year.Meanwhile, a deepening selloff in Chinese stocks is exacerbating a crisis of confidence in the world's second-largest economy, heaping pressure on policymakers.

Existing mortgages carry an average interest rate of about 4%, compared with 3.2% on newly-issued loans for a first home and 3.5% for a second home, according to data compiled by China Real Estate Information Corp in late August.

China's outstanding amount of mortgages, which count as prime assets at Chinese lenders, stood at 37.79 trillion yuan ($5.3 trillion) at the end of June, the lowest level in nearly three years. Further rate cut would pile pressure on the banks, which have already seen their margin tumble to a record low of 1.54% as of end-June, well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.

Homeowners would save over 300 billion yuan in annual interest expenses assuming an 80-bp cut, analysts at Shenwan Hongyuan Group estimated.