Chinese banks raise mortgage rates for the first time in 3 years

Data from Barchart revealed on December 19 that Chinese banks raised new mortgage costs for the first time in three years. The data also indicated that the Chinese banks’ margins are narrowing due to a persistent property slump and a slowdown in China’s economy.

Data from Singapore-based firm Data Motion International Trading Pte also revealed that the average mortgage rate for buyers’ first homes in 42 big cities inched up to 3.08% last month from a record low of 3.05% in October. The increase in mortgage rates remains surprising because the housing market is still in a persistent decline that began three years ago.

The Chinese housing market prices are still plummeting despite recent signs of improvements in sales following a stimulus push that began in late September.

Chinese regulators guide banks to raise mortgage rates on new loans

Chinese Banks raise mortgage rates for the first time in 3 years pic.twitter.com/NlP5RWX0ot

— Barchart (@Barchart) December 19, 2024

Chinese banks are battling a record-low net interest margin but are still under pressure to boost their books. The pressure seems to be constraining the central bank’s ability to further bring down interest rates. More rate cuts could indicate that next year will intensify the challenge for lenders to find ways to deal with declining loan rates.

Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co, believes that home sales will likely remain challenging in the near future, making the rate increase unjustified from a market perspective.

“It’s likely that regulators guided the banks to raise mortgage rates on new loans in a concerted move, so as to create enough buffer for further and bigger rate reductions next year.”

– Shen Meng, Director at Chanson & Co.

The world’s No.2 economy moved to lower costs in late September on as much as $5.3 trillion in outstanding mortgages for homeowners to bolster the property market. Pang Gongsheng, Central Bank governor, revealed that the measures would result in an average 50 basis point cut for borrowers and reduce their annual interest expenses by about 150 billion yuan ($20.6 billion).

PBOC’s executives issue guidance to ease price war among banks

Figures from Data Motion that surveyed banks’ local branches across Chinese cities also disclosed that 17 out of the 42 cities lifted first-home mortgage rates in November. Cities like Wuhan, Wenzhou, and Changsha recorded the biggest increase of 20 basis points.

A report by Caixin revealed that the uptick trickled down from guidance given by local branches of a supervisory body overseen by the People’s Bank of China (PBOC). The supervisory body known as the interest rate self-disciplinary mechanism cited two unnamed bank executives. 

The report also disclosed that the executives’ guidance was intended to ease a “price war” among banks that undermined profitability as they raced to slash mortgage rates to draw clients.

Official data also indicated that combined profits at commercial lenders edged up just 0.5% in the first three quarters to 1.9 trillion yuan. The data also showed that total non-performing loans surged to a record 3.4 trillion yuan at the end of September. Net interest margins also narrowed to 1.53%, the lowest ever and well below the 1.8% threshold regarded as necessary to maintain reasonable profitability.

The nation’s central bank cut the reserve requirement ratio in recent years to free up low-cost money and address lenders’ profit pressure. China’s banks also cut deposit rates to reduce funding costs. The country’s authorities joined in vowing to beef up capital positions at the biggest state-owned lenders using funding from the sale of special sovereign bonds.

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