(Yicai) Sept. 25 -- More than 40 million homeowners in China with mortgages totaling about CNY25 trillion (USD3.4 trillion) are set to benefit from interest rate cuts on first home loans that began today, Shanghai Securities News reported.

Banks generally made cuts for first-time mortgage borrowers with floating rates linked to the central bank’s benchmark loan prime rate by an average of 0.8 percentage point today, the report said. 

Lenders should issue new home loans to replace the ones people took out to buy their first property or adjust the rates on existing loans, China’s National Administration of Financial Regulation and the People’s Bank of China said on Aug. 31.

Many cities have also relaxed their definition of a first-time homebuyer, allowing people who own a property in a different city, or who do not currently own a property but have taken out a home loan before, to be classified as first-time buyers. In China, first-time buyers enjoy lower interest rates and down payment ratios.

The four first-tier cities or Beijing, Shanghai, Shenzhen, and Guangzhou were the first to ease their classification of first-home buyers at the start of the month. 

This helps people who would otherwise face interest rates of 6 percent or even higher to qualify for lower interest payments, Chen Wenjing, director of market research with the China Index Academy, told Yicai.

A man surnamed Liu, for instance, will benefit by nearly CNY2,000 (USD273) per month. He has a second home in Beijing, but his home can now be classified as a first home based on the new standards, so the interest rate will drop 108 basis points to 4.8 percent.

Cutting rates on existing mortgages will help lower the debt burden on people and spur consumption, said Wang Yifeng, chief financial analyst at Everbright Securities. It will also lessen the incidence of early mortgage repayments, easing the hit to banks’ income from interest, and help steady the growth of housing-related financing.

Lower mortgage rates will also help to discourage borrowers from unlawfully using business and consumer loans to replace their existing home loans, said Zhang Xu, chief fixed income analyst at Everbright Securities.

Editor: Kim Taylor