China establishes mortgage rate adjustment mechanism for some home buyers

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BEIJING (Reuters) – China’s central bank and banking and insurance regulators have set up a dynamic mortgage rate adjustment mechanism for first-time home buyers, the central bank said on Thursday in a bid to further support the real estate sector.

For cities where new home selling prices fall month-to-month and year-to-year for three consecutive months, the mortgage rate floor for first-time homebuyers may be gradually lowered or eliminated, the People’s Bank of China said in a statement ( PBOC).

At the end of September, the central bank had allowed municipalities to take similar measures until the end of 2022.

The move is more flexible than September’s policy, said Chen Wenjing, an analyst at China Index Academy, one of China’s largest real estate research firms, adding, “It will reduce the cost of buying a home and help break the rigid and rising better support demand for housing.”

The crisis in China’s housing market, once a pillar of the world’s second-largest economy, worsened last summer as property prices, sales and investment fell sharply.

In recent weeks, policymakers have ramped up support for the industry to ease a prolonged liquidity squeeze that has hit developers and delayed the completion of many housing projects and discouraged buyers.

According to analyst calculations, 38 cities are eligible for adjustable mortgage floors, including some second-tier cities like Wuhan and Zhengzhou and more than 20 smaller cities.

Analysts said the move shows the government’s growing intent to support demand in struggling cities, but added the impact could be limited.

“Reducing mortgage rates failed to increase sales. We believe homebuyer confidence is a more important factor than affordability,” analysts at JPMorgan said in a research note.

Ni Hong, head of China’s housing regulator, vowed to give strong support to first-time homebuyers by allowing smaller down payments and lowering mortgage rates wherever appropriate, according to state broadcaster CCTV on Thursday.

Ni said buyers of second homes must be given “appropriate” support, but not for purchases of three or more homes, and he is confident the property market will stabilize and recover in 2023.

(Reporting by Liangping Gao, Ellen Zhang, and Kevin Yao; Editing by Mark Potter, Chizu Nomiyama, and Kim Coghill)