The tide of early repayment has receded after the existing first-home mortgage interest rates were lowered: many banks did not queue up and handled it directly, “just two or three transactions a week”
The “early loan repayment wave” – this game between banks and home buyers has been going on for more than a year. At that time, the scene of early loan repayment in various banks was “overwhelming with reservations and queues of complaints”.
On October 25, one month after the existing first-home loan interest rates were reduced, various banks uniformly lowered the interest rates for existing home loans that meet the requirements of “converting second homes to first homes”. Many banks have successively disclosed their “report cards” of adjustments. So, has the “early loan repayment wave” receded? The reporter visited several banks to learn about this.
Many banks handed over “report cards” for mortgage adjustments
On August 31, the People’s Bank of China and the State Administration of Financial Supervision jointly issued the “Notice on Matters Related to Reducing the Interest Rates of Existing First Home Loans” (hereinafter referred to as the “Notice”), which clearly supports and encourages banks to follow the principles of marketization and rule of law. Negotiate with borrowers to adjust existing first-home loan interest rates.
After the “Notice” was released, many banks, including the six major state-owned banks, successively issued detailed adjustment rules for existing first-home loan interest rates. According to statistics from the People’s Bank of China, from September 25 to October 1, in the first week of the official implementation of the reduction in the existing first-home loan interest rates, 98.5% of the existing eligible first-home loan interest rates were reduced, a total of 49.73 million, 21.7 trillion yuan. The adjusted weighted average interest rate was 4.27%, with an average decrease of 0.73 percentage points.
On October 25, one month after the existing first-home loan interest rates were lowered, various banks have again set the requirements for “converting a second home to a first home” and previously used fixed interest rates or benchmark interest rates, and the borrowers have applied to the bank. Loans that were converted to LPR pricing were reduced uniformly.
Recently, when the third quarterly reports of A-share listed banks were disclosed, China Construction Bank, Agricultural Bank of China, Industrial Bank, etc. also successively disclosed the progress of interest rate adjustments for existing mortgage loans.
Liurong Sheng, Chief Financial Officer of China Construction Bank, said that at present, the interest rate adjustment work on existing mortgage loans has basically been completed, and the bank’s loans that meet the adjustment conditions have basically been adjusted in place, and 99% of the qualified housing loans have completed interest rate adjustments. Zha Chengwei, general manager of the personal credit department of Agricultural Bank of China, said that the bank has implemented interest rate reductions for eligible first-time home loans, benefiting more than 7.3 million customers in total, with an average reduction of 73 basis points. Industrial Bank’s announcement shows that the bank has completed the first batch of proactive batch adjustments on September 25 for existing floating-rate first-home loans that comply with LPR pricing, involving nearly one million customers, saving customers’ mortgage interest payments.
The trend of early repayments in many banks has declined
The existing mortgage interest rates have been lowered for more than a month. Will the “early repayment wave” recede? “Daily Economic News” reporters visited many banks in the western region.
The president of a branch of China Construction Bank in the western region told reporters that since the existing mortgage interest rates were lowered, the branch’s prepayment phenomenon has been significantly alleviated.
“There is no need to queue up now. If customers want to repay in advance, they can do it directly at the counter. Recently, there are only two or three transactions per week.” The bank president said that the phenomenon of early repayment is no longer as “ferocious” as it was at the beginning of the year. The normal situation has basically returned to the past. “Everyone is calm.”
“After the interest rate cut, our bank has no customers who have paid off their mortgage loans in advance recently, and there is no need to queue up. You can repay in advance as soon as the approval is completed.” The mortgage manager of a branch in the western region of the Bank of China also said the same.
As for the length of the “approval” cycle, it depends on the specific requirements of different banks.
The reporter learned from the mortgage business manager of the Chengdu branch of a national joint-stock bank that the bank’s early loan repayments “are currently stable and there is no need to queue up. However, banks will have their own review cycles, and we have not changed it for a month.”
Through interviews, reporters found that the wave of early repayments in many banks has declined.
Zou Lan, director of the Monetary Policy Department of the People’s Bank of China, said at the recent press conference on financial statistics for the third quarter of 2023: “People have generally reported that the reduction in existing mortgage interest rates has significantly reduced the interest burden and reduced the incentive to repay loans early. Especially for the working class and individual industrial and commercial households who bought houses when interest rates were higher in the early stage, the effect is particularly obvious.”
There are also some banks where the situation of early repayment has not changed significantly.
However, not all banks have enjoyed the “dividends” brought by the reduction in existing mortgage interest rates. “Daily Economic News” reporters interviewed relevant personnel from many banks and found that the early repayment situation of some banks has not changed significantly.
A mortgage manager at a branch of ICBC in the western region said: “There have been a lot of early repayments recently, so you will definitely have to queue up.”
“Our bank does not have many early repayment customers, and the situation during this period is almost the same as usual. There is basically no significant change before and after the interest rate cut.” said an account manager of a provincial city commercial bank in the west.
The popularity of early repayment is related to the business volume of different regions and different banks. It may also be different among different branches of the same bank. The popularity of early repayment in some banks has not subsided significantly. What is the reason behind it?
Analysts believe that under the current economic situation, some borrowers may face risks such as reduced income. In this case, they may choose to pay off their mortgages as early as possible to reduce future uncertainty. In addition, some borrowers may not be satisfied with the extent and sustainability of the reduction in existing mortgage interest rates, believing that early repayment can save more interest payments. In addition, some borrowers may have other financial needs or investment plans in the future and need to use early repayment to release more capital space.
Banks can alleviate net interest margin pressure in many ways
The reduction in existing mortgage interest rates will not only reduce borrowers’ mortgage interest expenses, but also smooth the operating pressure caused by early loan repayment on commercial banks and retain high-quality mortgage customers. But at the same time, it also puts certain pressure on banks’ net interest margins.
Zou Lan mentioned that in recent years, the profits of my country’s commercial banks have maintained growth, but the net interest margin has continued to narrow, and the profit growth rate has also declined. In the first half of 2023, the net profit of commercial banks was 1.25 trillion yuan, a year-on-year increase of 2.6%, and the growth rate was 4.5 percentage points lower than the same period last year; the net interest margin was 1.74%, a year-on-year decrease of 0.2 percentage points.
Analysts believe that after the existing mortgage interest rates are reduced, banks’ asset-side yields will decline, while the liability-side funding costs will be affected by many factors. On the one hand, as monetary policy gradually returns to normal and market interest rates rise, banks’ interbank lending costs and bond issuance costs will also increase accordingly; on the other hand, as residents’ willingness to save declines and consumer demand rebounds, bank deposits increase With the economy slowing down and competition for deposits intensifying, deposit interest rates will also rise. Therefore, banks still face major challenges in controlling liability-side funding costs.
In order to cope with the pressure, banks can adopt various approaches to alleviate the impact on net interest margins. For example, they can optimize the loan structure, increase the proportion of high-yield assets, and actively expand fee-based business. At the same time, they can also effectively control the growth rate of liabilities and reasonably allocate resources to ensure the stability of net interest margins.
Overall, the reduction in existing mortgage interest rates has brought relief to many borrowers and has helped stabilize the housing market. However, there are still challenges for banks in managing their net interest margins in the face of narrowing margins and increasing funding costs. It will be crucial for banks to implement effective strategies to maintain profitability while providing support to borrowers.