As the lower limit on mortgage rates has been reduced since May 2024, combined with a cumulative 35 basis point reduction in the five-year Loan Prime Rate since the beginning of the year, the interest rate gap between existing and new mortgages has rapidly widened.
Several homebuyers interviewed by Caijing revealed that banks have imposed conditions for early repayment of mortgages, commonly requiring at least one month’s notice for prepayment. Lu Ting, Chief China Economist at Nomura, noted that the current gap between existing and new mortgage rates has expanded to 90-130 basis points, increasing the pressure on the central bank to lower interest rates on existing mortgages. He expected the central bank to guide commercial banks to lower interest rates on existing mortgages in the coming months, with the reduction likely to be similar to that at the end of 2023.
However, the situation is not entirely the same as it was a year ago. In June 2024, the net interest margin for commercial banks was 1.54%, a year-on-year decline of 20 basis points. “Further lowering the interest rates on existing mortgages can boost consumption, but adjustments haven’t been made yet, mainly due to concerns about the impact on banks,” Sheng Songcheng, Professor of Economics and Finance at the China Europe International Business School, told Caijing.
