On October 21, the People's Bank of China authorized the National Interbank Funding Center to announce the Loan Prime Rate (LPR) in the loan market as follows: the 1-year LPR is 3.10%, and the 5-year and above LPR is 3.60%, both down by 0.25 percentage points from before.

Financial Associated Press reporters noted that with the new round of LPR cuts, commercial banks in many parts of the country will enter the "2" era in mortgage rates. Of note, commercial bank mortgage rates in cities like Guangzhou and Dongguan may be lower than provident fund loan rates.

Zeng Gang, Director of the Shanghai Finance and Development Laboratory and Chief Expert, pointed out in an interview with Financial Associated Press reporters that the situation where commercial bank mortgage rates are lower than provident fund loan rates has not been seen before. He predicts that after the adjustment of commercial bank mortgage rates, there will be room for subsequent adjustments in provident fund loans, further reducing the financing costs for homebuyers overall.

Zhou Maohua, a macro researcher at the Financial Markets Department of China Everbright Bank, pointed out in an interview with the Financial Associated Press that this reduction in mortgage rates, combined with the accumulated effects of stable real estate policies before, will greatly contribute to the real estate market's recovery. He noted that there is still room for downward adjustment in future LPRs, but also faces certain constraints. Zeng Gang also believes that there is still room for LPR to be adjusted downwards.

In cities like Guangzhou and Dongguan, mortgage rates will be lower than provident fund loans.

Before this round of LPR cuts, in the Guangzhou area, the first home commercial bank loan rates were mostly below LPR-85BP, the lowest being 2.85% from HSBC and Standard Chartered Bank, already on par with the local first home provident fund loan rate of 2.85%; ICBC, CITIC, CMB, Ping An, and other commercial banks in the Guangzhou area also have first home mortgage rates as low as 2.9%.

At the same time, some commercial banks in Dongguan offer first home mortgage rates as low as 2.9%, only slightly higher than the local first home provident fund loan rate of 2.85%.

With the new round of LPR reduction, the first home loan interest rates of some local commercial banks in Guangzhou may be as low as 2.6%, and the lowest first home loan interest rates of some local commercial banks in Dongguan may be as low as 2.65%, both below the current first home provident fund loan rate of 2.85%.

It is understood that both Guangzhou and Dongguan have previously cancelled (Dongguan official notice as temporarily cancelled) the lower limit of housing loan interest rates. This morning, Caixin reporters consulted credit personnel at HSBC and other commercial banks in Guangzhou about the announcement of the LPR reduction this morning, and the reply was, "We have learned about this morning's LPR reduction announcement and are now waiting for the new housing loan rate adjustment notice within our bank."

"The provident fund housing loan is a policy-supported loan, so it generally has a lower interest rate than commercial banks' mortgage loans," Zeng Gang pointed out. Historically, there has indeed never been a situation where the housing loan interest rate of commercial banks was lower than that of provident fund housing loans.

Jiuquan Housing Provident Fund Management Center previously explained the difference between provident fund loans and commercial loans, pointing out that provident fund loans are a policy-oriented loan, not for profit, and are managed by the government-established Housing Provident Fund Management Center.

However, Zeng Gang mentioned that if commercial bank mortgage rates are further adjusted to be lower than provident fund loans, the possibility of subsequent adjustments in provident fund loan rates will also emerge.

Zhou Maohua also pointed out the possibility of further reasonably reducing provident fund loan rates in the future. It is worth mentioning that he indicated that this may also be sending a signal, "Currently, the interest rates for first-home mortgages in some areas are already lower than provident fund loan rates, which may also indicate that mortgage rates in some areas are approaching the bottom."

Caixin reporters noted that there has been a round of reductions in the annual provident fund housing loan interest rates within the year. On May 17th this year, the People's Bank of China issued a notice to lower personal housing provident fund loan rates. Starting from May 18, 2024, the interest rates for first-time personal housing provident fund loans for both 5 years and under (including 5 years) and over 5 years have been adjusted to 2.35% and 2.85% respectively. The interest rates for second personal housing provident fund loans for both 5 years and under (including 5 years) and over 5 years have been adjusted to not less than 2.775% and 3.325% respectively.

Housing loan rates in many parts of the country are entering the "2" era, industry insiders say: there is still room for LPR to be adjusted downwards.

Caixin journalists noticed that before this LPR cut, the first-home commercial loan interest rates in popular cities such as Changsha, Wuhan, and Hangzhou had already dropped to around 3.1%. After this round of LPR cuts, the first-home commercial bank loan interest rates in these cities will enter the "2" era.

According to market news, Changsha had previously removed the lower limit of mortgage interest rates, and the interest rate for first-home mortgages had dropped to a minimum of 3.15% (for loans of over 5 years). After this LPR cut, Changsha's mortgage interest rates will drop to a minimum of 2.9%. The same applies to Wuhan and Hangzhou, where the first-home mortgage rates will drop to a minimum of 2.9% after this round of LPR cuts.

Zhou Maohua pointed out that this reduction in mortgage rates, combined with the cumulative effect of the stable housing market policies released earlier, will help the real estate sector recover. He believes that the recent unprecedented domestic policies to stabilize the real estate market, with efforts from both supply and demand sides, targeted policies, and the domestic real estate sector having undergone a lengthy adjustment, will lead to a recovery in the real estate sector. Zeng Gang pointed out that the reduction in mortgage rates will promote the stable development of the entire real estate market.

Of note, industry insiders generally believe that there is still room for further downward adjustment of the LPR. Zeng Gang pointed out that since September, the intensive introduction of various policies to drive the stabilization and improvement of the economy in the fourth quarter striving to achieve the annual 5% target, there is a high possibility of further efforts through monetary policy if needed. He mentioned that there is still room for future reserve requirement ratio reductions and interest rate cuts to further reduce the cost of social financing.

Zhou Maohua stated that from the perspective of space, the current domestic environment of low commodity prices, overseas policy shift, ample space for conventional tools such as interest rate cuts and reserve ratio cuts domestically, coupled with the stable operation of the financial system, there is still room for LPR rate cuts. However, he also pointed out that the decline in LPR rates also faces certain constraints, such as significant net interest margin pressure on some domestic banks.