China Index Academy: The interest rate cut has finally landed, which is expected to drive down home buying costs again

According to the Zhitong Finance APP, the China Index Academy published an article stating that on May 20, the People's Bank of China authorized the National Interbank Funding Center to announce the latest Loan Prime Rate (LPR). The 1-year LPR and the LPR for over 5 years were both lowered by 10 basis points, adjusting from 3.10% and 3.60% to 3.00% and 3.50%, respectively. Overall, the recent phase of easing "reciprocal tariffs" between China and the United States has occurred, but there are still many external unstable and uncertain factors. Since May, the reduction in reserve requirements and interest rates has been implemented successively, which helps to consolidate the stable operation of the macro economy and also helps to stabilize the real estate market.

May's reduction in reserve requirements and interest rates, the first decrease in the LPR for over 5 years this year

On May 7, the central bank, the Financial Regulatory Administration, the China Securities Regulatory Commission, and others held a press conference where the central bank governor announced a reduction in the reserve requirement ratio and policy interest rates. "First, the reserve requirement ratio will be lowered by 0.5 percentage points, which is expected to provide about 1 trillion yuan in long-term liquidity to the market... Third, the policy interest rate will be lowered by 0.1 percentage points, meaning the 7-day reverse repurchase operation rate will be adjusted from the current 1.5% to 1.4%, which is expected to drive the Loan Prime Rate (LPR) down by about 0.1 percentage points... Fifth, the interest rate for personal housing provident fund loans will be reduced by 0.25 percentage points, with the interest rate for the first home over 5 years dropping from 2.85% to 2.6%, and other term rates adjusted accordingly."

On May 8, the central bank lowered the interest rate for personal housing provident fund loans by 0.25 percentage points, adjusting the rates for first and second home provident fund loans over 5 years from 2.85% and 3.325% to 2.6% and 3.075%, respectively. On the same day, the 7-day reverse repurchase operation rate was adjusted from 1.50% to 1.40%, a decrease of 10 basis points.

On May 15, the central bank's reduction in reserve requirements was implemented, lowering the reserve requirement ratio by 0.5 percentage points, which is expected to provide about 1 trillion yuan in long-term liquidity to the market.

On May 20, the 1-year and over 5-year LPRs were lowered by 10 basis points, which was in line with market expectations.

Overall, the recent phase of easing "reciprocal tariffs" between China and the United States has occurred, but there are still many external unstable and uncertain factors. Since May, the reduction in reserve requirements and interest rates has been implemented successively, which helps to consolidate the stable operation of the macro economy and also helps to stabilize the real estate market.

The reduction in provident fund loan rates and the LPR for over 5 years is expected to guide further adjustments in housing loan rates across various regions, leading to a decrease in home buying costs

Recently, the reduction of 0.25 percentage points in provident fund loan rates has released the interest rate spread between provident fund loan rates and commercial housing loan rates in some cities, which is conducive to further adjustments and optimization of commercial housing loan rates.

Currently, the lower limits of mortgage interest rate policies for first and second homes at the national level have been removed, and in several cities, the mortgage interest rate for first homes has dropped to around 3.0%, a historical low. The recent reduction in the 5-year LPR will help guide mortgage rates in various regions to further decline, continuing to lower the cost of home purchases for buyers.

Taking Beijing as an example, the previous mortgage rates for first and second homes were 3.15% (LPR - 45BP) and 3.35% (outside the Fifth Ring, LPR - 25BP) / 3.55% (inside the Fifth Ring, LPR - 5BP), respectively. After this adjustment, the mortgage rates for first and second homes in Beijing are expected to be adjusted to 3.05% (LPR - 45BP) and 3.25% (outside the Fifth Ring, LPR - 25BP) / 3.45% (inside the Fifth Ring, LPR - 5BP), with both the first home and the second home outside the Fifth Ring reaching historical lows.

According to market news, recently, the mortgage interest rate for first homes in Guangzhou has been uniformly adjusted from the previously implemented LPR - 60 basis points to LPR - 50 basis points. After the recent reduction in the 5-year LPR, the mortgage rate for first homes in Guangzhou will remain unchanged from the adjustment before the increase. We believe that Guangzhou's approach does not change the overall downward trend of mortgage rates, and there is still room for further reductions in Guangzhou's mortgage rates in the future.

Additionally, this LPR reduction will also lead to a decrease in existing mortgage rates. After the mortgage rate repricing date, existing mortgage rates can follow the downward adjustment, reducing the repayment pressure on residents who have already purchased homes.

Overall, the recent decrease in housing provident fund loan rates and the reduction in the 5-year LPR will further lower the purchasing costs for homebuyers, support the release of residential housing demand, and play a positive role in consolidating the stability of the real estate market. Furthermore, the central bank governor Pan Gongsheng previously pointed out that "based on the economic and financial operation situation and the effectiveness of various tools, the scale of tools can be expanded and the policy elements of tools can be improved." It is expected that more policies to support real estate financing are likely to continue to be implemented in the future, such as financial policies related to the sale of existing homes and providing funding support for urban renewal.