New Policies in the Real Estate Market: "Translation" for You! Regarding Interbank Loan Conversion, Determination of the Lower Limit of Interest Rates Before the "Anchor Change" in 2020, Interest Savings...

In recent days, there have been a series of heavyweight news regarding real estate credit policies, from "no need to verify loans when buying a house" to adjustments in interest rates for existing first-home loans, and further adjustments in differentiated housing credit policies. For ordinary people, understanding these important policies can help them better enjoy the policy dividends. The Financial Times interviewed several market institutions and homebuyers, sorted out several "difficult" questions, and combined them with explanations from authoritative departments to provide a step-by-step guide to understanding the key points of the policies.

Q: If someone has previously had a housing loan or currently owns another property, and is therefore classified as a "second-home" buyer, can they now apply for a lower interest rate based on the first-home loan standard?

A: Yes, they can, as long as the borrower's actual housing situation meets the first-home standard in their city.

For example, if the local policy is "no need to verify loans when buying a house," and the borrower's family does not own any other properties when purchasing the house, but due to the local government's policy of "verifying loans when buying a house," the loan for this property is processed at the interest rate for second-home loans, then the borrower can enjoy the benefits of this policy. In addition, if the property was not the borrower's only residence at the time of purchase, but other properties were subsequently sold through transactions or other means, and this property becomes the borrower's only residence and is subject to the local government's policy of "no need to verify loans when buying a house," then the borrower can also apply for the first-home loan based on this property.

Q: On March 1, 2020, the "switching anchor" of mortgage interest rates was implemented as scheduled, allowing existing loans to be converted into floating rates based on the Loan Prime Rate (LPR) plus a spread or fixed rates, to be determined through negotiation between the borrower and the lender. Are fixed rates included in this policy adjustment?

A: Yes, they are.

When the mortgage interest rates "switched anchor," the majority of residents chose to link their existing contracts to the LPR. According to our statistics, 99% of users chose the floating rate linked to the LPR, but 1% of users chose a fixed rate. This policy adjustment to lower the interest rates for existing first-home loans will also benefit this 1% of users. Those who originally chose a fixed rate can negotiate with the bank to adjust the interest rate level, which must still meet the lower limit of the first-home loan interest rate policy in the city where the loan was originally issued.

Q What is the lowest interest rate that can be achieved for first-home loans taken out before the LPR reform in October 2019?

A: In theory, it can be lowered to the lower limit of the policy interest rate in the city where the loan was originally issued at that time.

In practice, banks will reasonably determine the interest rate level for each loan based on the lower limit of the first-home loan interest rate policy established by the provincial-level market interest rate pricing self-discipline mechanism, as well as the operating conditions and customer risk profiles of the institution. Considering the continuity of the policy, it is expected that the interest rate level will mostly be unified with the post-LPR reform standard, which means that in most cities, it will not be lower than the LPR.

Q How is the lower limit of interest rates determined for borrowers who meet the first-home loan criteria?

A: It should be based on the lower limit of the interest rate policy in the city where the loan was originally issued. The financial regulatory authorities have set the lower limit for this adjustment: the spread above the LPR must not be lower than the lower limit of the interest rate policy for commercial personal housing loans for first homes in the city where the loan was originally issued. Moreover, newly issued loans can only be used to repay existing commercial personal housing loans for first homes and will still be subject to the management of commercial personal housing loans. According to the analysis by reporters from the Financial Times, as of the time of writing, Beijing, Shanghai, Shenzhen, and other cities have announced the lower limit of interest rates for first-time commercial personal housing loans.

So, after the implementation of this new policy, if a borrower named Zhang in Shanghai buys a house in January 2020, the lower limit of the interest rate negotiated with the bank this time would be LPR-15BP; if the purchase is made in September 2021, the lower limit of the interest rate would be LPR+35BP.

The relevant data for Shenzhen is as follows:

Q: Is the LPR standard for the lower limit of interest rates in this policy based on the original loan time or the time of the new loan agreement?

A: This adjustment only modifies the value of the interest rate added to the LPR as stipulated in the contract.

For example, Ms. Chen, a resident of Beijing, replaced her property in February 2020. Restricted by Beijing's policy on property and loan eligibility, the mortgage interest rate was LPR+115BP (4.75%+115BP=5.9%), and the lower limit of the interest rate for the second home loan at that time was LPR+105BP (4.75%+105BP=5.8%). In recent years, the LPR rate has been continuously reduced, and her current loan interest rate is (4.2%+115BP=5.35%).

If Beijing's policy on property eligibility without loan eligibility can be implemented, Ms. Chen's property can be regarded as her first home. According to the interest rate lower limit for first homes implemented in Beijing at that time, it would be LPR+55BP. If she applies and reaches an agreement in September 2023, based on the current LPR rate (4.2%)+55BP=4.75%, which is the lowest limit she can lower her interest rate to.

Q: How much interest can be saved by reducing the interest rate on existing first home loans?

According to estimates by regulatory officials, after the adjustment of the interest rate on existing first home loans, the financial burden of over 40 million households and hundreds of millions of residents will significantly decrease, with an average reduction of about 0.8 percentage points. Taking a 1 million yuan loan with a term of 25 years and an original interest rate of 5.1% as an example, assuming the mortgage rate is reduced to 4.3%, borrowers can save over 5,000 yuan in interest payments per year.

Q: Is it possible to transfer loans between different banks under this policy?

A: No, it is not possible.

The "Notice on Matters Related to Reducing the Interest Rate on Existing First Home Loans" provides two methods: The first method is that starting from September 25, 2023, borrowers of existing first home commercial personal housing loans can apply to the lending financial institution to replace the existing loan with a new loan issued by the financial institution. In other words, if Mr. Wang's mortgage is with Bank A, after September 25th, he can apply to Bank A to replace the existing outstanding mortgage with a newly issued loan.

The second method: Starting from September 25th, 2023, borrowers of existing first-home commercial personal housing loans can also apply to the lending financial institutions to negotiate changes to the contractually agreed interest rate level.

That is, if Mr. Wang's mortgage is with Bank A, after September 25th, Mr. Wang can apply to Bank A to negotiate changes to the interest rate of the existing outstanding mortgage.

According to regulatory insiders, from the perspective of the adjustment results, since the People's Bank of China has already specified the specific requirements for adjusting the interest rates of existing mortgage loans, namely, the need to comply with the local lower limit policy for mortgage rates at the time of loan issuance, it is expected that there will be no significant difference in the interest rate levels after the adjustment using these two methods.

Q Why negotiate with banks instead of banks making unified adjustments directly?

A: Because the mortgage rates vary in different periods and places. Some homebuyers' mortgage rates are already at historically low levels and can continue to be executed according to the original contract. In addition, based on market-oriented and rule-of-law principles, it is necessary to respect the independent choice of borrowers and financial institutions.

Banks will also adopt batch processing and other methods to minimize the operating costs for borrowers.

Q How to apply specifically?

A: Starting from September 25th, 2023, borrowers of existing first-home commercial personal housing loans can apply to financial institutions to negotiate changes to the interest rates of existing mortgage loans or replace the existing first-home commercial personal housing loans with newly issued loans.

Specific details are still being formulated. Before September 25th, banks will revise contract texts, adjust systems, identify customers who meet the criteria, and promptly announce the application process and required materials to borrowers.

Q The policy window has been opened, and the market is most concerned about the extent to which policies will be implemented in first-tier hot cities. Under the guidance of "tailored policies for different cities," will there be significant adjustments in hot cities?

A: After the introduction of this policy, local governments will independently determine the minimum down payment ratio and the lower limit of interest rates based on the local real estate market situation and regulatory needs. At the same time, financial institutions will also reasonably determine the specific down payment ratio and interest rate level for each loan based on local policies and market principles.

Regulatory insiders believe that in the past few years, as the real estate market has risen rapidly, cities have determined the lower limit of mortgage interest rate policies based on the principle of tailored policies for different cities. Under the supply and demand situation at that time, the mortgage interest rates offered by some hot cities were significantly higher than the policy lower limit and the risk compensation needs of banks. Local authorities need to assess the current situation of the real estate market and make corresponding decisions.