Chinese banks may raise mortgage rates in tightening drive, analysts say
Mainland Chinese banks are expected to increase mortgages rates in response to local governments’ ongoing measures to curb housing speculation and cut lending to home buyers in order to cut financial leverage, analysts say.
“Strengthened tightening measures to cool off housing inflation would play a key role in banks raising mortgage lending rates to align with a tougher housing policy across major cities, that is showing no sign of loosening,” said Zhao Yarui, a senior researcher at Bank of Communications in Shanghai.
Zhao anticipated that banks could opt to raise mortgages rates in the coming months to reflect the housing policy, even as the People’s Bank of China refrained from raising benchmark interest rates for fear of choking domestic economic growth.
Major cities including Beijing and Shanghai have increased down payment requirements, strengthened controls on selling prices, restricted purchases by non-locals and second-home buyers and cracked down on residential flats built on commercial and office land to curb speculation and irregularities.
Average mortgages rates for first-time home buyers rose to 4.73 per cent in May, up from 4.52 per cent in April, according to data from financial data provider Rong360. The 4.73 per cent rate would have represented a 6.29 per cent increase from a year earlier, and was a mere 3 per cent discount on the benchmark rate set by the central bank.
Previously, first-time home buyers can enjoy a maximum discount of 15 per cent in cities like Shanghai, due to concessions from authorities which supported buyers that were end-users and not speculators.
But such concessions are petering out as only 47 per cent of banks offer discounts for first-time home buyers in May, a sharp drop from April’s 84 per cent, according Rong360. Some banks even charge a premium of between 5 to 10 per cent for home buyers who are eager to secure lending for home deals.
David Qu, a market economist at ANZ in Shanghai, said banks were under growing pressure to charge higher mortgage rates to counter rising funding costs amid authorities’ tightening regulations to reduce dangerous high leverage levels and root out irregularities.
Across the country and in major cities like Shanghai, the cooling measures are already taking effect as mortgage growth has slowed down.
“When banks are squeezed to grow mortgage by scale, their attempts to raise rates doesn’t come as a surprise,” Qu said.
In Shanghai, mortgage growth decreased for six straight months to 15.5 billion yuan (US$2.3 billion) in May. Nationwide, mid- and long-term household lending, a proxy of mortgages, grew by 432.6 billion yuan in May, down from 444.1 billion yuan in April, according to central bank data.
Growths in home prices and transactions, both in value and floor space, also cooled in May on the mainland.