China’s central bank should take an active role in reducing the financial burden of hundreds of millions of homeowners, and the government should step in to provide affordable housing to migrant workers – actions which would both serve to release much-needed consumer demand, a former government researcher has said.

Many residents in China are still paying hefty interest on their mortgages because they bought their homes when prices were high, said Zhou Tianyong, a professor with the Dongbei University of Finance and Economics and a former senior researcher with the Central Party School in Beijing.

“The central bank could introduce monetary policy to reduce interest rates on existing loans for hundreds of millions of residents who bought homes at high prices,” said Zhou in a post on his WeChat account on Tuesday.

“It is possible that the previous generation won’t be able to repay it, and the next generation will now have to pay. This may not be in line with the [government’s] people-centred approach,” Zhou said.

The academic estimated that homebuyers had to pay a cumulative 5.74 trillion yuan (US$789 billion) in interest on their mortgages, and – after factoring in the allocation of extra income to cover high housing costs in addition to interest – 41 trillion yuan of consumption was lost between 2000 and 2023.

Zhou also urged central and local governments to provide affordable housing for migrant workers, including college and technical school graduates with rural household registration looking for jobs in cities.

This, he said, would lower the costs of moving and urban living for the rural population, and would in turn help boost the labour force as well as their overall income – seen as essential in stabilising China’s future economic growth.

Zhou has joined a growing chorus of analysts who have argued homeowners who bought their houses at peak pricing are less inclined to benefit from easing measures introduced last year.

Last week, a commentary in the state-run Economic Observer questioned the “fairness” of the current policy. First-time homeowners in Beijing, for instance, who took out a mortgage in 2019 had to pay 4.75 per cent on their loans compared to 3.5 per cent if they had bought a house this year.

Several local governments have intensified their efforts to shore up demand in the beleaguered property market by cutting minimum ratios for down payment.


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The discussions around lower mortgage costs revolve around whether Chinese banks should conduct a new round of discounts for existing mortgage loans, said Vivian Xue, director of Asia-Pacific financial institution ratings at Fitch Ratings.

According to data from the Shanghai-based E-House Real Estate Research Institute, the average mortgage rate in the country’s financial centre fell to 4.1 per cent for first-time buyers from 4.55 per cent last year, following the start of mortgage relaxations.

Yan Yuejin, research director at the institute, said in some cases rates could be as high as 6 per cent, prompting a need for renegotiation with banks.

“[Expert] voices reflect certain opinions from the public, given their considerations on current economic conditions,” Yan said.

“The banks won’t be willing to cut mortgage rates voluntarily. But they might also face rising risk of default, so the banks will have to balance their need to maintain profits as well as the security of the loans.”

However, Xue at Fitch Ratings said a mandatory, blanket rate reduction across all outstanding residential mortgages is less likely because it might add more pressure on banks’ net interest margin (NIM), a major gauge of profitability.

Home mortgages accounted for around 15 per cent of the banking sector’s loan portfolio at the end of the first quarter this year, Xue said.

“The authorities have publicly conveyed their concerns about the current low level of Chinese banks’ NIM, and highlighted the importance of maintaining a reasonable NIM and profitability for banks to ensure a robust capital buffer through economic cycles.”

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