Chinese Banks Raise Mortgage Costs for First Time in Three Years
Chinese banks raised new mortgage costs for the first time in three years, as narrowing margins are dragged down by a persistent property slump and slowdown in the world’s No 2 economy.
The average mortgage rate for buyers’ first homes in 42 big cities inched up to 3.08 per cent in November from a record low of 3.05 per cent in the previous month, the first increase since October 2021, according to data from Singapore-based firm Data Motion International Trading.
That change was surprising since the housing market remains mired in a decline that began three years ago, and has rippled through the economy. Property prices are still falling despite recent signs of an improvement in sales following a stimulus push that began in late September.
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Price War
Some 17 out of the 42 cities with available data lifted first-home mortgage rates in November, according to figures from Data Motion, which surveys banks’ local branches across Chinese cities. Wuhan, Changsha and Wenzhou cities recorded the biggest increases of 20 basis points.
The uptick trickled down from guidance given by local branches of a supervisory body overseen by the People’s Bank of China (PBOC), known as the interest rate self-disciplinary mechanism, according to a report by Caixin, citing two unnamed bank executives.
That instruction was intended to ease a “price war” among banks that’s undermined profitability as they race to slash mortgage rates to draw clients, the report said, citing the sources.
Challenges for Lenders
Chinese banks have suffered a chronic pile-up in bad loans and margin erosion in recent years, as Beijing relied on them to funnel cheap lending to bolster the world’s second-largest economy.
Combined profits at commercial lenders edged up just 0.5 per cent in the first three quarters to 1.9 trillion yuan, official data showed. Total non-performing loans jumped to a record 3.4 trillion yuan at the end of September, while net interest margin further narrowed to 1.53 per cent, the lowest ever and well below a 1.8 per cent threshold regarded as necessary to maintain reasonable profitability.
Conclusion
The recent increase in mortgage rates may be a sign of a concerted effort by regulators to create a buffer for further and bigger rate reductions next year. While it may hit housing demand, it is unlikely to nip the early recovery in the bud.
FAQs
Q: Why did Chinese banks raise mortgage costs?
A: Chinese banks raised mortgage costs to ease a “price war” among banks that has undermined profitability as they race to slash mortgage rates to draw clients.
Q: What is the current mortgage rate in China?
A: The average mortgage rate for buyers’ first homes in 42 big cities inched up to 3.08 per cent in November from a record low of 3.05 per cent in the previous month.
Q: What is the outlook for the Chinese property market?
A: The property market remains mired in a decline that began three years ago, and has rippled through the economy. Property prices are still falling despite recent signs of an improvement in sales following a stimulus push that began in late September.
