(Yicai Global) May 20 -- Chinese lenders have begun lowering interest rates on mortgages for first-time home buyers after the country’s central bank said five days ago that it would allow banks to cut the lower limit on rates for first-time home loans.

Lenders in the first-tier cities of Guangzhou and Shenzhen, eight second-tier cities including Suzhou and Tianjin, and 10 third-tier cities have pared the minimum rate to 4.4 percent, the lowest now available, according to a report E-House China Research and Development Institute published yesterday. They ranged from 5 percent to 4.6 percent in most of these cities before the cuts.

Cities where the lower rate limits are still more than 5 percent are highly unlikely to move to 4.4 percent in short order, E-House noted. Rates in many cities such as Shanghai and Chengdu are below 5 percent, so they very likely will be cut to 4.4 percent, it added.

The People’s Bank of China and the China Banking and Insurance Regulatory Commission said on May 15 that banks could cut the lower limit on rates for first-time buyers by 20 basis points to 4.4 percent, based on the corresponding term of benchmark loan prime rates. The lower limit for second homes remained at 5.2 percent, based on the LPR + 60 bps formula.

China’s interest rate policy on home loans is very loose, but property demand is still likely to be curtailed by people’s incomes and lower expectations for income, so local governments can further loosen policy, including by trimming down payments, Yan Yuejin, head of research at E-House, told Yicai Global.

China’s property sales plunged nearly 47 percent to CNY813.4 billion (USD121.2 billion) last month from a year earlier because of outbreaks of Covid-19 in the country, according to data recently released by the National Bureau of Statistics. In the first four months, the figure dropped almost 30 percent to CNY3.8 trillion (USD566.1 billion).

The PBOC today also lowered the five-year LPR by a record 15 basis points to 4.45 percent, thereby reducing the lower rate limit on first-time home loans to 4.25 percent. The one-year LPR stays at 3.7 percent.

New urban residents and families with more than one child will probably enjoy preferential loan interest rates when buying property, but only for ordinary commercial housing and first homes, E-House predicted.

Editor: Dou Shicong, Futura Costaglione