Home loan rates for first-time buyers rise as Beijing tries to curb property market

Banks have started charging up to 130 per cent of the benchmark interest rate

PUBLISHED : Wednesday, 20 September, 2017, 7:43pm
UPDATED : Wednesday, 20 September, 2017, 7:43pm

Home loan rates are going up in Beijing and other big Chinese cities as the government tries to discourage people from buying property with huge loans.

The rate increases target new borrowers – those with existing mortgages will not be affected.

China’s big four state banks – the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and the Bank of China – began earlier this month charging 105 per cent of the benchmark rate to first home buyers in Beijing.

Smaller banks – including China Minsheng Bank and Shanghai Pudong Development Bank – have meanwhile started charging 110 per cent of the benchmark rate to first home buyers in Beijing, while the Beijing branch of Baoshang Bank is charging 130 per cent of the benchmark rate.

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The only bank still offering mortgages at an interest rate below the benchmark is the Beijing branch of HSBC – with a 1 per cent discount to the benchmark, according to data compiled by retail banking information website Rong360.com.

Chinese banks can in theory decide how much they charge for mortgages, but in practice the government tries to control the housing market by deciding how much banks can lend homebuyers and how much they can charge in interest on those loans.

Home loan rates in Beijing and other big cities such as Shanghai, Shenzhen and Nanjing have been going up in tandem with property prices, which the government is struggling to contain.

Real estate prices in China’s big cities have been climbing at an almost unstoppable pace since the government began allowing private ownership of homes in 1998, and Beijing and Shanghai are now ranked among the top 10 most expensive cities in the world.

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But there are signs the market is cooling, according to Liu Xuezhi, an analyst with the Bank of Communications in Shanghai. “Mortgage rate policy is just one of the government measures [to control the market] and we could see it tightened further if necessary.”

The latest bank moves to raise mortgage rates were endorsed in a statement from the central bank on Tuesday. The People’s Bank of China said the increases were “in line with policy requirements and directions and the central bank proactively supports the rise in mortgage rates”.

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It marks a turnaround from two years ago, when most banks offered mortgages with interest rates at a 15 per cent discount to the benchmark. In 2014, the central bank and banking regulator even told lenders they could offer a discount of 30 per cent to the benchmark rate for first home buyers.

Meanwhile, down payments are also going up. In Beijing, the minimum down payment for a first home was raised to 35 per cent in 2017, and for a second home it went up to 60 per cent.

Industrial Bank chief economist Lu Zhengwei said the minimum down payments could be raised further. “Leverage control is essential to government measures to curb property prices,” Lu said.

Across the country, total bank loans for property amounted to 30 trillion yuan as at the end of June – of which 20 trillion yuan were mortgages, according to central bank figures.