China’s financial authorities have allowed banks to further reduce mortgage loan interest rates based on the benchmark loan prime rates (LPR) for some home buyers in a bid to bolster the property market. Commercial lenders can cut the lower limit of interest rates on home loans by 20 basis points for purchases of first homes, based on the corresponding tenor of loan prime rates. The reduction in mortgage loan rates aims to support demand and promote stable and healthy development of China’s property market. In its monthly fixing in April, the PBOC kept its one-year LPR unchanged at 3.70% and the five-year LPR, typically used as a benchmark for mortgage loans, steady at 4.60%. Banks in many cities cut mortgage loan rates in the first quarter following calls from authorities to support buyer sentiment in a market rocked by a liquidity crunch and troubled developers last year, and now by nationwide Covid-19 outbreaks.
The latest loan guidance came after central bank data on Friday showed new bank loans plunged to their lowest in more than four years in April, as varying degrees of Covid lockdowns in dozens of cities curbed lending, with mortgage loans contracting. To free up more funds for lending, the PBOC on April 25 reduced the amount of cash that lenders must set aside as reserves. More modest easing measures are expected as authorities vow to roll out more policies to support the broader economy.