Heavy! The biggest ＂interest rate cut＂ in history!

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It fully embodies the policy intention of interest rate policy to participate in activating the real estate market and promoting a virtuous circle of the real estate market.

Xu Qian, reporter of China Housing News, reports from Beijing.

After a lapse of eight months, the LPR of more than five years ushered in the first downward adjustment in the Year of the Loong.

On the morning of February 20th, the People’s Bank of China authorized the National Interbank Funding Center to announce that the quoted interest rate (LPR) of the loan market on February 20th, 2024 was: the one-year LPR was 3.45%, which was the same as the previous value; The LPR over 5 years is 3.95%, which is 25 basis points lower than the previous value.

Prior to this, China’s five-year LPR has remained unchanged for seven consecutive months, and the one-year LPR has remained stable for five consecutive months. This asymmetric "interest rate cut" in the industry’s view is more in line with the current policy of stabilizing real estate and stabilizing the economy.

From the perspective of LPR formation mechanism, LPR is made up of 18 quotation lines after adding points according to MLF interest rate, and a highest quotation and a lowest quotation are removed, and the data after weighted average calculation forms quotations. Generally speaking, it is normal to adjust the one-year LPR symmetrically with the one-year LPR over five years, but asymmetric adjustment is not uncommon.

The last symmetrical adjustment was on June 20, 2023, and both the one-year LPR and the five-year LPR were lowered by 10 basis points. In the subsequent adjustment on August 21, 2023, the one-year LPR was lowered by 10 basis points, while the LPR over five years remained unchanged.

LPR with a term of more than 5 years is the main reference benchmark for the pricing of medium and long-term corporate loans and personal housing loans. The reporter noted that since August 20, 2019, there have been eight downward adjustments in LPR interest rates for more than five years in China, but in the past, the downward adjustment was generally 5 to 15 basis points. The one-time reduction of LPR for more than five years is 25 basis points, which is the fiercest rate cut ever recorded in history, releasing a great signal to reduce the interest rate of medium and long-term loans.

Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Urban and Rural Planning Institute, explained that this year, the pressure of steady employment and steady growth has increased, and the policy focus has returned to a loose framework. However, based on the weak employment and income expectations of residents, the policy side is not only stimulating on the demand side, but more importantly, it is to reduce costs. This LPR reduction is to reduce costs. On the one hand, the fundamentals of the demand side of the property market are still weak, and residents’ expectation of buying houses with leverage is low; On the other hand, a substantial and one-off reduction in the beginning of the year will avoid the market wait-and-see mood of "interest rates will be lowered, and then we will wait for housing and loans", which is conducive to promoting residents to borrow money to buy houses.

Chang Yang, chief analyst of Zhongtai Securities, said that the asymmetric downward adjustment of interest rates in different maturities indicates that the target that the policy wants to play a role is focused, and the one-year LPR remains unchanged, or indicates that the intention to stimulate manufacturing investment and consumption is relatively stable. Due to the relatively strong correlation between the five-year LPR and the real estate market, lowering the five-year LPR interest rate is also a part of the combination of demand-side policies in the real estate market. Combined with the recent intensive introduction of more policy measures around the real estate market, it fully reflects the policy intention of interest rate policy to participate in activating the real estate market and promoting a virtuous circle of the real estate market.

"LPR over five years is the pricing benchmark of individual housing loans. The decline of LPR over five years will further reduce the interest expenses of residents’ mortgages and promote the stable development of the real estate market." Dong Ximiao, chief researcher of Zhaolian, said.

The LPR for more than 5 years has dropped, when can the mortgage interest rate drop? This is a problem that the market is very concerned about.

According to the relevant announcement issued by the central bank, financial institutions should negotiate with customers of floating interest rate loans from March 1, 2020, and choose one of two interest rate pricing methods: fixed interest rate or floating interest rate, that is, LPR+ plus points (the points can be negative). Under normal circumstances, a fixed interest rate is chosen, and the annual repayment rate remains unchanged until all loans are paid off; However, if the floating interest rate is selected, the mortgage interest rate will be priced by LPR as the pricing benchmark+basis point (1 basis point is 0.01%).

It should be noted that after the LPR adjustment, the user’s mortgage interest rate is not adjusted immediately. Generally speaking, the repricing date of mortgage interest rate is January 1st of each year or the loan issuing date (different banks have different policies, so users can choose when signing loan agreements). Therefore, for the existing mortgage, the new interest rate will be obtained according to the latest LPR quoted interest rate and the contractual basis point on the interest rate repricing date, and will be implemented in the next cycle.

According to the data monitored by RealData, in January 2024, the average interest rate of the first mainstream mortgage in Baicheng was 3.84%, and the average interest rate of the second mainstream mortgage was 4.41%. Li Yujia predicted that, considering that the mortgage interest rate dropped slightly last year, the housing loan interest rate will continue to decline this year, and the first and second home loan interest rates will drop by at least 30 basis points.

Yan Yuejin, research director of Yiju Research Institute, believes that the current real estate market is in the stage of stabilization and recovery, but the recovery process needs to be consolidated. This "interest rate cut" is beneficial to the reduction of capital cost and directly leads to the reduction of mortgage interest rate, which has a positive impact on the mortgage market. According to the simple calculation of the loan principal of 1 million yuan and the repayment method of 30 years’ equal principal and interest, the monthly mortgage payment of buyers can be reduced by about 150 yuan after the interest rate cut, which is a relatively heavy burden reduction, which is helpful to further promote the application and consumption of mortgage loans and promote the active follow-up housing market.

Original title: "Heavy! The biggest "interest rate cut" in history! 》