China's central bank has cut the lower-bound range of mortgage interest rates for first-time homebuyers amid a persistent slump in the mainland's property market.
The minimum mortgage rate is reduced to 20 basis points below the corresponding tenors of loan prime rate, the de facto benchmark lending rate, the People's Bank of China said in a statement.
Most mortgages are longer than five years and pegged to the five-year LPR - at 4.6 percent now - so the new floor is effectively 4.4 percent.
The change is to support housing demand and "promote the stable and healthy development of the property market," the PBOC said, reiterating that "housing is for living in, not speculation." The minimum mortgage rate for buyers of second homes is unchanged.
The cut follows a slump in household lending indicated by official data released Friday, with mortgages contracting by 60.5 billion yuan (HK$69.95 billion) in April. Home sales continued to plunge across major cities at the beginning of May, after combined sales by the top 100 developers halved in the first four months of the year.
The PBOC said it will guide banks in each city to set their own minimum rates on top of the national requirement. Banks in more than 100 cities have cut mortgage rates by 20 to 60 basis points since March, officials said in April.
Mortgages can also be pegged to the one-year LPR, which is 3.7 percent, if their length is only one year. The PBOC last set the LPRs as the minimum mortgage rates in 2019 during a reform to liberalize interest rates. Before that, the central bank cut the benchmark lending rate for loans above five years in 2015.
Some analysts are expecting banks to reduce the LPRs at the end of next week, after the central bank guided them to lower deposit rates, which led to lower funding costs.
The rates were last cut in January following a reduction in the PBOC's policy interest rates.
This came as the government in Dongguan, a town in China's southern Guangdong province, has allowed families with two or three children to buy an additional residential property, the latest Chinese city to loosen its policies on the real estate sector to boost the market.
