122 banks in 35 cities raised mortgage rates in April. It is expected that there will more cities to take similar measures.
Preferential mortgage rates are cut in tier-1 cities including Beijing, Shanghai, Guangzhou and Shenzhen recently. Benchmark mortgage rate is adopted for first-home buyers in Beijing. The loan term is much longer while interest rate is raised. Industry insiders think that the regulation measures in Beijing which takes the lead in this round of regulation of real estate market plays a leading role. It is expected that benchmark interest rate will be a mainstream.
It is learnt by Economic Information Daily from many banks and real estate agents in Beijing that many banks in Beijing have adopted the policies that the first-home buyers have to pay at least the benchmark mortgage rate of 4.9 percent, while second-home buyers have to pay 20 percent above the benchmark. Previously, most banks offered 5 percent discount for interest rate of buying the first house and another 10 percent above the former for interest rate of buying the second house.
“Almost all of the banks have implemented the new policies.” One worker in housing agent indicated that few banks can offer 1.1 times of interest rates for buyers who file the second houses in advance. An official from a Beijing branch of Bank of China also told the journalist that from May 1 on, the bank began to carry out the policy with lowest benchmark mortgage rate for the first house and may provide discounts for some houses which it cooperates with developers.
In addition, industry insiders disclosed that as loans for commercial housing has been upgraded, banks have basically suspended the business related to it.
“On the whole, the increasing credit rate is inevitably.” Zhang Dawei, chief analyst from Centaline Property, said that as regulation policy in real estate market keeps tightened, capital cost of banks grow significantly. For example, the probability of adjusting housing prices in Beijing will be higher under tough regulation; therefore, banks’ risk awareness on pledge strengthens. It is expected that the banks will continue to tighten loan quota for real estate industry and raise prices of mortgage loans.
Besides Beijing, mortgage rates in Guangzhou, which is always taking no actions, jump remarkably. Shanghai Pudong Development Bank and Industrial Bank have applied benchmark mortgage rate for first-home buyers in Guangzhou, which offered 5 percent discount before. China Minsheng Bank and China Merchants Bank also lowered the discounts from 10 percent to 5 percent. Due to tight quota, China Citic Bank raised the mortgage rate by 20 percent above the benchmark for first-home buyers.
Most banks in Shenzhen generally lowered the discounts from 10 percent to 5 percent for the mortgage rate for first-home buyers, and some banks implemented benchmark mortgage rate again. The highest discount for mortgage rate for first-home buyers was lowered to 5 percent by Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank in Shanghai. As for the mortgage rate for buying second house, Shinhan Bank enhanced the mortgage rate by 20 percent above the benchmark and extended the loan term to several months.
In fact, housing loans began to be tightened from April. According to Rong360.com, 122 banks or 22.89 percent of the 533 banks in 35 cities across the country lowered preference on mortgage rate for buying the first house in April. Specifically, the number of banks which offered higher than 10 percent discount for mortgage rate was 42, down by 66 or 61 percent when compared with that in March. At the same time, 12 banks suspended providing loans.
According to Rong360.com, besides the 12 banks which stopped providing loans, 511 banks raised the mortgage rate by 10 percent above the benchmark for second-home buyers, which is the mainstream mortgage rate for buying second house. 283 banks required second-home buyers to pay 40 percent or less than 40 percent down payment, which were 17 banks fewer than that in the previous month. Noticeably, the down payment for second house in Shenzhen and Guangzhou is 70 percent, while that in Nanjing and Suzhou is as high as 80 percent. The number of banks requiring second-home buyers to pay 50 percent, 60 percent, 70 percent and 80 percent down payment was 55, 84, 51and 34 respectively.
The cost of inter-bank lending grows due to increase in capital cost. The period of withdrawing housing loans is long and profitability of this business is lower than the business of emerging consumption finance. Therefore, banks are very likely to raise mortgage rates and the quota will tend to be reasonable, said Li Weiyi, analyst from Rong360.com.
2011 and 2014 saw the strictest regulation over loans in Beijing. Benchmark mortgage rate for first-home buyers was adopted again, which greatly impacted the mentality of home purchasers, Zhang added.
“It will be normal in the future that Banks will tighten loan quotas, increase prices and slow down in making loans.” Zhang remarked that there will be more hot cities following Beijing to adjust mortgage loans in the future. On the one hand, they will reduce discounts and increase capital cost. On the other hand, loan term will be much longer. It is expected that benchmark mortgage rate will be mainstream. Industry insiders pointed out that mortgage rate may go up further in the future.
Translated by Vanessa Chen
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