On February 20, 2024, the People's Bank of China authorized the National Interbank Lending Center to announce that the latest loan market ** interest rate (LPR): 1-year LPR is 345%, unchanged, and 395%, a 25 basis point reduction.
The timing of the interest rate cut is basically in line with market expectations, but the rate cut is far greater than market expectations.
Since August 2019, the LPR of 5 years and above has been adjusted a total of 8 times, and the largest decline before that was 15BP, which occurred in May and August 2022, and the remaining 5 reductions were 5-10 basis points, so the 25BP reduction was the largest since the establishment of the LPR mechanism.
However, judging from the current market performance, the stimulus brought by the interest rate cut is not enough to offset its "bearish wait-and-see" sentiment, so the scale of housing demand that can be leveraged is still relatively limited.
On February 20, the central bank announced the latest LPR**, which was lowered by 25bp to 395%。
From the point of view of nodes, the nodes of this interest rate cut are basically in line with market expectations. On the one hand, the recent RRR cut and the reduction of deposit interest rates by commercial banks have effectively reduced the cost of funds for banks and opened up the downside of LPR.
However, the rate cut far exceeded market expectations, and the 5-year LPR is the interest rate anchor for housing loans, and its reduction will directly drive down mortgage interest rates.
Taking Beijing and Shanghai as examples, on December 14, 2023, Beijing and Shanghai issued an announcement on optimizing and adjusting the housing purchase policy, and after the adjustment, the mortgage interest rate for the first home in Beijing will not be less than LPR+10BP in the six urban districts, not lower than LPR in the six non-urban districts, and the first home loan interest rate in Shanghai will not be lower than LPR-10BP. That is, the interest rate of the first home loan in Beijing is as low as 395%, and the lowest interest rate for the first home loan in Shanghai is 385%, which is a significant low in recent years.
Up to now, a number of commercial banks in Shanghai have raised the interest rate of the first home loan to 385%（lpr-10bp）。After the mortgage interest rate is lowered, for the new mortgage borrowers, the same loan of 1 million, equal principal and interest for 30 years, can save about 50,000 yuan of interest expenses than before, and reduce the monthly payment by 150 yuan, which will mobilize the enthusiasm of some groups with a clear willingness to buy a home and accelerate the release of their demand for home purchases, but for more potential home buyers, the stimulus brought by the interest rate cut is not enough to offset their "bearish and wait-and-see" wait-and-see sentiment, so the scale of housing demand that can be leveraged is still relatively limited.
Judging from the credit policy in recent years, the number of cities benefiting from the LPR reduction of 5 years and above is actually relatively limited.
First of all, according to the provisions of the housing credit policy, the lower limit of the interest rate of commercial personal housing loans for the first house is not less than the corresponding term LPR minus 20 basis points (LPR for more than 5 years - 20 basis points); The lower limit of the interest rate of commercial personal housing loans for second housing is not less than the corresponding term LPR plus 60 basis points (LPR + 60 basis points for more than 5 years).
The LPR over 5 years fell 25 basis points to 395%, which means that the lower limit of the interest rate on the first home loan for the purchase of an ordinary house is reduced to 375%, and the lower limit of the interest rate for second home loans is reduced to 455%, which is a historical low.
However, in combination with the notice issued by the People's Bank of China and the China Banking and Insurance Regulatory Commission on January 5, 2023 on the establishment of a dynamic adjustment mechanism for the interest rate policy of the first set of housing loans, the sales of newly built commercial residential buildings** in cities that have declined for three consecutive months on a month-on-month and year-on-year basis can maintain, reduce or cancel the lower limit of the local first housing loan interest rate policy in stages. (For policy interpretation, see: Three Ministries and Commissions Speak Out!) Mortgage rates and down payments may break through the lower bounds).
According to the statistics of the editorial department of Ding Zuyu's review of the property market, at present, among the 70 large and medium-sized cities, there are nearly 40 cities that meet the conditions of the first month of decline in the sales of new commercial residential buildings for three consecutive months on a month-on-month and year-on-year basis, which means that at least half of the lower limit of the first home loan interest rate in the city is not affected by the change in LPR for 5 years and above.
Therefore, at present, the cities that can still enjoy the benefits of the LPR reduction of more than 5 years are mainly some hot cities.
For home buyers, more benefits are in the stock mortgage part. On September 20, 2023, Zou Lan, director of the Monetary Policy Department of the People's Bank of China, said in response to a question that the interest rate of most of the existing first home loans that meet the requirements will be reduced to the loan market ** interest rate. For the first home loan with a floating interest rate priced with reference to the interest rate of the loan market, it is clear that the interest rate will be adjusted in batches on September 25, and the whole process does not require the borrower's operation.
That is to say, with the reduction of LPR for more than 5 years, the mortgage interest rate of the existing housing loan will be adjusted on the repricing date (generally in January next year), when the monthly repayment pressure of residents will be reduced, and the subsequent consumption potential is expected to be released, but this is mainly for the overall consumer market, and the benefit to the real estate market is limited.
Judging from the current overall market performance, the heat of the core first- and second-tier cities has declined, and the third- and fourth-tier cities have returned to their hometowns to buy homes, and the pressure on the market is increasing.
CRIC monitoring data shows that the trading volume of 44 key cities during the Spring Festival week is only 23380,000 square meters, down 87% month-on-month, down 40% year-on-year, and 82% lower than the same period in 2022.
The start of 2024 is still very "difficult", even if the core first and second lines have successively relaxed purchase restrictions and loan restrictions before the year, the stimulating effect on home buyers is still limited.
It can be seen that the current number of hot cities and hot projects has decreased, and the negative effect of the downgrade of purchasing power on the property market is gradually emerging. At the same time, the second-hand housing market in core cities such as Shanghai, Beijing, and Hefei has not improved significantly, and it is difficult to release the replacement demand.
Based on this, we believe that the overall transaction volume in February 2024 may further decline month-on-month, and the first quarter will still be dominated by "bottoming".
On the whole, we believe that the sharp reduction of LPR for 5 years and above can accelerate the release of housing demand for some groups with clear willingness to buy homes, but for more potential home buyers, more policy combinations are needed.
For example, tax and fee reductions, reduction of housing transaction taxes and fees, reduction of deed tax exemption for the purchase of the family's only house or improvement of housing, and shortening the period of VAT and individual income tax exemption for house purchases.
Combined with the statement of the Ministry of Housing and Urban-Rural Development to "give local governments greater autonomy in regulation and control", and the four cities of Beijing, Shanghai, Guangzhou and Shenzhen gathered around the Spring Festival to relax the purchase restrictions, we believe that there is still significant room for the relaxation of the four restrictions in first-tier cities and strong second-tier cities such as Hangzhou and Chengdu in the future.
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Article**: Ding Zuyu commented on the property market