By love-89.com On October 21, the People’s Bank of China authorized the National Interbank Funding Center to announce the latest Loan Prime Rates (LPR). The one-year LPR was set at 3.1%, while the LPR for loans with a term of five years or more was set at 3.6%. Both rates have decreased by 25 basis points compared to last month.
This adjustment comes on the heels of the central bank’s decision on September 27 to lower the benchmark interest rate for seven-day reverse repurchase agreements from 1.7% to 1.5%. This led to a 0.3 percentage point decrease in the Medium-Term Lending Facility (MLF) rate. Experts believe that the recent LPR reduction signifies the effective functioning of the central bank’s interest rate transmission mechanism, gradually aligning short-term and long-term rates.
Pang Ming, Chief Economist for JLL Greater China, shared with a reporter from China News Service that the 25 basis point cut is influenced by several factors. Firstly, the “external environment is increasingly complex and severe, and the foundation for economic recovery still needs to be strengthened,” which necessitates maintaining a certain level of monetary policy. Secondly, China’s frequency of interest rate cuts is not as high as that of other economies, requiring a more substantial one-time adjustment. Lastly, this move can facilitate adjustments in both new mortgage rates and existing mortgage interest rates, promoting stability and recovery in the real estate market.
The reduction in the LPR for five years or more will directly impact housing loan rates. Yan Yuejin, Deputy Director of the Shanghai E-House Real Estate Research Institute, stated that this will further lower the cost of home purchases and the pressure of monthly repayments. For a loan of 1 million yuan, calculated on a 30-year fixed-rate basis, a 25 basis point reduction in the LPR could lead to a decrease of over 130 yuan in monthly payments and approximately 48,000 yuan in total interest over the loan term.
Since the beginning of this year, the five-year LPR has dropped a cumulative 60 basis points, benefiting both new and existing home loans significantly. For prospective homebuyers, this translates to lower interest costs. Additionally, for existing borrowers, the LPR decrease of 0.6 percentage points this year, along with commercial banks’ upcoming average reduction of about 0.5 percentage points in existing mortgage rates on October 25, suggests that overall mortgage rates might drop by more than 1 percentage point this year.