What do China's eased mortgage policies mean for home buyers, property sector

BEIJING -- China's financial authorities eased mortgage policies on Thursday in an effort to better meet housing demand and promote sound development of the property sector. Here is a quick summary of what the policy adjustment means for home buyers and the real estate market.

Good news for 40 million borrowers

The interest rates of existing mortgages for first-home purchases will be lowered, according to an official statement. Starting from Sept 25, banks and borrowers will be encouraged to negotiate a rate change or a swap for a new loan.

According to analysts, the lowering of mortgage rates will benefit about 40 million borrowers. For instance, if the interest rate of a 1-million-yuan ($140,000) mortgage for a 25-year term is cut from 5.1 percent to 4.3 percent, borrowers' interest payments will drop by over 5,000 yuan a year.

As of June end, China's outstanding individual home loans stood at 38.6 trillion yuan.

The People's Bank of China expects the reduction in interest expense for borrowers to help spur consumption and investment. For the banking sector, the early mortgage repayment rush will be eased, and the risk from mortgage irregularities will also diminish.

Thursday's policy adjustments also featured lower down payment requirements for home purchases. The minimum down payment ratios for first-home and second-home purchases nationwide will be no less than 20 percent and 30 percent, respectively, down from 30 percent and 40 percent previously.

The eased down payment rules will help better satisfy the rigid housing demand and needs of those who wish to improve their housing conditions, experts said.

Improving market confidence

The adjustments in housing credit policies echo the call from the Communist Party of China leadership and the Chinese government, which in July urged the roll-out of optimized real estate market policies to adapt to the major changes in the market and meet different demands.

Recently, the criteria for identifying first-home buyers were relaxed to allow more people to enjoy preferential policies, and favorable individual income tax measures were extended for those selling homes to buy new ones.

The moves still adhere to the principle, "housing is for living in, not for speculation," and support people's housing demand, Wang Qing, an analyst at Golden Credit Rating, said.

Wang added that the recent policies and measures signal the government's support for the healthy development of the real estate market, which will help build up market confidence.

Multiple major banks have said that they will accelerate the preparation work from hammering out detailed rules to drafting contract documents and making adjustments to the relevant systems.