China is considering allowing homeowners to refinance as much as $5.4tn of mortgages to lower borrowing costs for millions of families and boost consumption.
Under the plan, homeowners would be able to renegotiate terms with their current lenders before January, when banks typically reprice mortgages, people familiar with the matter said, asking not to be identified discussing private information.
They would also be allowed to refinance with a different bank for the first time since the global financial crisis, the people said.
Authorities are ramping up a push to reduce mortgage costs after the central bank encouraged such support last year and banks responded with a rare rate cut on outstanding mortgages of first homes. It wasn’t immediately clear if the latest considerations apply to all homes.
While lower mortgage rates would hurt profitability at state-run Chinese banks, authorities are facing renewed pressure to stem a housing-led slowdown in Asia’s largest economy.
“If implemented, the move would send a signal that the central government is intensifying measures to support overall economy, protect household wealth and spur consumption,” said Raymond Cheng, head of China property research at CGS International Securities Hong Kong. “It would also indirectly help the real estate sector.” A Bloomberg index of Chinese developers jumped more than 8% yesterday, with Shimao Group Holdings Ltd surging as much as 28% and China Vanke Co jumping up to 17% in Hong Kong. China’s offshore yuan currency also hit the strongest in over a year, amid optimism that further property stimulus would ease market concerns about the housing downturn and China’s growth prospects.
Concerns about a deteriorating outlook intensified this week after a string of disappointing earnings reports from consumer companies and a cut to China’s growth forecast by economists at UBS Group AG. The downgrade reflects an emerging consensus among global banks that the country might miss its growth target of around 5% in 2024. The nation last fell short in 2022, amid Covid lockdowns and abrupt policy changes.
The People’s Bank of China and the National Financial Regulatory Administration didn’t respond to requests for comment.
The new plan targets existing homeowners, who have been left out as new homebuyers have enjoyed sizeable cuts to key interest rates this year.
If approved, it may serve to ease mortgage burdens faster than expected. While China has pushed average mortgage costs to a record low this year, most households haven’t benefited since banks won’t reprice existing loans until next year.
Shujin Chen, China economist at Jefferies Financial Group, estimated the refinancing move could cut rates on existing mortgages by maximum 1 percentage point, saving homeowners about 300bn yuan ($42bn).
“The move is going in the right direction if homeowners are allowed to switch banks for lower rates in the long run, it’s more market oriented and better than a one-off reduction,” said Chen.