Chinese Banks Tighten Mortgage Lending Policies Amid Government Measures to Cool Down Property Markets

Strategic Insights -

As China's government intensifies efforts to curb soaring property prices, banks are being forced to reassess their mortgage lending practices, a once-profitable business that has become a risk factor for lenders. Concerns over a liquidity-driven property boom turning into a bust have prompted banks to re-evaluate their lending policies, with some taking steps to tighten loan conditions and reduce speculation. Despite initial reluctance, many major banks are now introducing measures to discourage speculation and favor genuine homebuyers, while increasing risks for speculators. The shift in lending policies is expected to dampen speculation and stabilize the property market.

Key Takeaways:

  • The Chinese government's measures to cool down property markets have forced banks to reassess their mortgage lending practices, which have become a risk factor for lenders.
  • Major banks are introducing measures to tighten loan conditions and reduce speculation, including stricter criteria for property location, building age, and price.
  • Some banks, such as Bank of Communications and Huaxia Bank, are offering preferential interest rates, flexible repayment terms, and reduced handling charges for genuine homebuyers.
  • Banks are requiring higher down payments and higher interest rates for loans to investors and speculators, with some pegging these rates 1 percentage point above the average rate.
  • The Bank of Communications has set an example by offering 30-year mortgage loans with up to 80% of the property value available at preferential interest rates for genuine homebuyers.
  • Speculators are being targeted by banks, with many requiring down payments of at least 40% of the property value and charging higher interest rates ranging from 20% to 30% above the average.
  • Huaxia Bank is requiring a minimum down payment of 30% for properties bigger than 90 square meters and 50% for villas.
  • Shenzhen Development Bank is shying away from lending to property speculators and applying stricter criteria for credit worthiness.
  • Guangdong Development Bank has no plans to take action on mortgage financing, citing a decline in demand for mortgage loans.

Statistics:

  • Mortgage lending accounts for an estimated 10% of BoCom's total profit.
  • BoCom will offer homebuyers 30-year mortgage loans of up to 80% of the value of properties of no more than 90 square meters at preferential interest rates.
  • The attractive terms for genuine homebuyers can increase BoCom's mortgage loan portfolio and reduce risks.
  • BoCom's assessment staff have been instructed to pay greater attention to the location of the property, the age and condition of the building, and the price of the property when it was new.
  • Down payments required for properties bigger than 90 square meters are 30% for Huaxia Bank and 40% for Shenzhen Development Bank.
  • The interest rate for investment-oriented properties and villas is now set by most banks at about 1 percentage point above the average rate of 5.751% a year.

Sources:

  • Asia Pulse
  • Bank of Communications (BoCom)
  • Huaxia Bank
  • Shenzhen Development Bank
  • Guangdong Development Bank