(Yicai Global) May 24 -- Banks in many Chinese cities again slashed the interest rate on first home mortgages to the minimum possible yesterday after the central bank cut the five-year benchmark reference rate for home loans late last week.

First-time home buyers with good credit status can enjoy a 4.25 percent interest rate, 20 basis point below the five-year loan prime rate, a staffer at the Qingdao branch of China Construction Bank told Yicai Global. Credit managers at Bank of Qingdao and the Suzhou branch of CCB also said their lending rates on first homes were cut to 4.25 percent.

In the span of a week, the People’s Bank of China has allowed commercial banks to cut borrowing costs for first-time buyers by as much as 35 bips. It announced on May 15 that lenders could set the lower rate at 20 bips below the LPR. They had previously been the same. On May 25, the PBOC then slashed the five-year LPR by 15 bips to 4.45 percent.

The central bank has allowed a floating mortgage rate system since August 2019, with the five-year LPR as the anchor, allowing commercial banks to decide their own rates within a certain range.

Bank branches in other cities have yet to follow suit in offering the lowest possible rate. “If the floor area is no more than 140 square meters, we use the 4.45 percent LPR for first-time mortgages,” said an employee at a local branch of Industrial and Commercial Bank of China in Chongqing.

Rates in China’s four first-tier cities are also well above average. Yicai Global learned that most lenders in Beijing have kept them at 5 percent for first-time home buyers and 5.5 percent for those purchasing second homes, corresponding to the formulas ‘LPR + 55 bips’ and ‘LPR + 105 bips.’

The lowest rate offered to first homes at large banks in Guangzhou is 5.05 percent, which corresponds to ‘LPR + 60 bips.’

With policy easing, most cities, except for the first-tier ones, are likely to gradually cut interest rates to the PBOC’s minimum permitted, according to Liao Zhiming, chief banking analyst at China Merchants Securities. The weighted average rate on new home loans may fall to about 4.6 percent, down nearly 90 bips from March, Liao said.

Editors: Tang Shihua, Futura Costaglione