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China to set floor on mortgage rates to curb housing risks

Effective from Oct 8, banks will set mortgage loans based on the new loan prime rate: central bank

Shanghai

CHINA will set lower limits on mortgage rates, the central bank said on Sunday, in an apparent bid to curb housing risks following its reform to switch to a market-based reference rate.

The government has clamped down on speculative investment in the housing market since 2016 to prevent a sharp correction as prices soared.

There have also been growing concerns that high house prices are pushing up the cost of business and restricting consumer spending.

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Effective from Oct 8, banks will set mortgage loans based on the new loan prime rate (LPR) - which has been used as a benchmark for banks to set lending rates, the People's Bank of China (PBOC) said in a statement published on its website.

The interest rate on individual mortgage loans for first-time home buyers cannot be lower than the LPR, and the rate on loans for second-time home buyers cannot be lower than the LPR plus 60 basis points, the central bank said.

The central bank will guide local authorities to set specific lower limits on mortgage rates to reflect local real estate market conditions, the central bank said.

"We should ensure the effective implementation of regional differential housing credit policy, keep individual mortgage rates basically stable and safeguard the legitimate rights and interests of both borrowers and lenders," the central bank said.

Mortgage loans signed before Oct 8 will be implemented according to original contracts, it said.

PBOC vice governor Liu Guoqiang told reporters on Tuesday that policymakers do not want to see further declines in mortgage rates, and will ensure they remain basically stable.

On Tuesday, China's central bank set the one-year LPR at 4.25 per cent and five-year rate at 4.85 per cent, as part of interest rate reforms to help reduce corporate borrowing costs in the world's second-largest economy.

The new one-year LPR was down 6 basis points (bps) from 4.31 per cent previously. It was 10 bps lower than the previous benchmark one-year lending rate. REUTERS