Data from Parkart on December 19 showed that Chinese banks raised new mortgage rates for the first time in three years. The data also indicated that Chinese banks’ margins are tightening due to the ongoing slump in the property sector and the slowdown in the Chinese economy.
Data from Singapore-based Data Motion International Trading Pte also showed that the average mortgage rate for first-home buyers in 42 major cities rose to 3.08% last month from a record low of 3.05% in October. The rise in mortgage interest rates remains surprising as the housing market remains in a downward spiral that began three years ago.
China's housing market prices continue to fall despite recent signs of improving sales following a stimulus push that began in late September.
Chinese regulators are directing banks to raise mortgage rates on new loans.
Chinese banks raise mortgage rates for first time in 3 years pic.twitter.com/NlP5RWX0ot
— Barchart (@Barchart) December 19, 2024
Chinese banks are facing record-low net interest margins, but they remain under pressure to shore up their books. That pressure appears to be limiting the central bank’s ability to cut interest rates further. Further rate cuts could signal that next year will add to the challenge for lenders to find ways to cope with lower lending rates.
Shen Ming, director of Beijing-based investment bank Chanson & Co., believes home sales are likely to remain difficult in the near future, making the price increase unjustified from a market perspective.
“Regulators likely directed banks to raise mortgage rates on new loans in a coordinated move, creating enough of a buffer to make further, larger rate cuts next year.”
- Shen Meng, Director at Chanson & Co.
The world’s second-largest economy moved in late September to cut costs on up to $5.3 trillion of outstanding mortgage loans to homeowners to support the property market. The measures will result in an average 50 basis point cut for borrowers and reduce annual interest expenses by about 150 billion yuan ($20.6 billion), central bank governor Pang Gongsheng said.
Figures from Data Motion, which surveyed local bank branches across Chinese cities, also revealed that 17 out of 42 cities raised first-home mortgage rates in November, with cities such as Wuhan, Wenzhou and Changsha recording the biggest increases of 20 basis points.
The rise was driven by guidance from local branches of a supervisory body overseen by the People’s Bank of China (PBOC), a report by Caixin said. The supervisory body, known as the Interest Rate Self-Discipline Mechanism, cited two unnamed bank executives.
The report also revealed that the executives' directives were aimed at easing a "price war" among banks that had undermined profitability as they raced to lower mortgage rates to attract customers.
Official data also showed that combined profits of commercial lenders rose just 0.5% in the first three quarters to 1.9 trillion yuan. The data also showed that total non-performing loans rose to a record 3.4 trillion yuan at the end of September. Net interest margins also narrowed to 1.53%, an all-time low and well below the 1.8% threshold considered necessary to maintain reasonable profitability.
The country’s central bank has cut reserve requirement ratios in recent years to free up low-cost money and address lenders’ profit pressures. Chinese banks have also cut interest rates on deposits to reduce funding costs. The country’s authorities have joined in a pledge to boost capital positions at the country’s biggest state-owned banks using financing from the sale of special sovereign bonds.