New mortgage rate scheme goes into effect

Interest rates on new commercial individual housing loans shall be based on the latest month's loan prime rate of corresponding term, plus added basis points.

China's latest measure to regulate the property market with a new mortgage rate scheme went quietly into effect yesterday.

Starting October 8, interest rates on newly issued commercial individual housing loans shall be based on the latest month's loan prime rate (LPR) of corresponding term, plus added basis points, China's central bank announced in late August.

The basis point addition should be in line with national and local housing credit policies and unchanged during the housing loan contract term, according to the People's Bank of China.

Previously, mortgage rates were typically calculated based on benchmark lending rates.

"The transition seems to be pretty smooth in Shanghai and we haven't noticed any signs of rush among home seekers to ink home purchase deals before the new policy becomes effective," said Yang Yulei, a senior analyst with Shanghai Homelink Real Estate Agency Co. "The impact is rather limited as the mortgage loans home buyers are required to pay under the two different rate schemes are not so significantly different."

For example, on a 30-year, 3-million-yuan (US$419,489) mortgage loan, the payment gap between the two schemes would be less than 100 yuan per month for home buyers, according to Homelink research.

Prior to October 8, the annual interest rate of commercial individual housing loans for first-time home buyers stood at a minimum 4.655 percent in Shanghai and 5.39 percent for second-home buyers. From yesterday, they stood at a minimum 4.65 percent and 5.45 percent, respectively.

The housing loan interest rate for first-time buyers should not be lower than the LPR of the corresponding term, while that for second-time buyers should not be lower than the combined level of the LPR and 60 basis points, PBOC said earlier.

In mid August, the central bank unveiled a plan to improve and reform the country's LPR mechanism. Disclosed on the 20th day of every month, the LPR functions as a market-based reference for lenders to set interest rates.

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