China’s major banks are expected to soon ease requirements for mortgage loans as the country’s government seeks to ease downward pressure on its housing market.
The anticipated move by the country’s big four state-run lenders, was reported yesterday in the 21st Century Business Herald, and follows soon after China’s National Bureau of Statistics found that property sales had slipped nearly 11 percent nationwide this year.
A similar report today in the Shanghai Securities News indicates that the banks are proposing to broaden the pool of buyers considered as “first-time” homebuyers to include individuals who may already own another property, but do not owe money on a mortgage. The banks also reportedly expect to lower interest rates for first-time homebuyers to as low as 70 percent of the central bank’s benchmark rate.
The decision to lower interest rates follows a similar but smaller scale move in Shanghai last month. Preferential lending to first-time buyers was largely discontinued last year following several months of double-digit increases in home prices.
Looser Lending Was Widely Expected
The changes in lending practices have been largely anticipated by the market, following several months of declining prices and slower home sales. According to the statistics bureau’s figures for August, average home prices in the 70 cities included in the government survey fell by 1.1 percent in August, a steeper drop than the 0.9 percent decline in July. August was the fourth straight month of falling home prices, according to the Bureau.
China’s home prices have continued to decline in July and August despite the removal of home purchase restrictions in most cities during those two months. The purchase restrictions had been put in place during 2011 to cool down the country’s then-frothy housing market.
The changes in lending policy had been widely expected as a next step in stopping the current market slide from becoming a rout.
Easier Mortgages Anticipated, Recovery is Not
Following the changes in mortgage policies for first-time buyers, many analysts expect the government to next begin lowering downpayment requirements from the current 30 percent minimum.
Despite these credit-easing measures, some leading analysts believe the housing market will continue to decline.
UBS economist Wang Tao said in a report today that, “We expect these measures to help ease the property market downturn to an extent, but not to reverse the downtrend or drive through a visible rebound.”
The comment by Wang is in line with a UBS report published last month that cast doubt on the power of government policy to significantly deter China’s housing market decline.