(Yicai) Jan. 12 -- After China asked banks to trim existing mortgage rates in the second half last year, many property owners in the country have discovered that they are not eligible to receive such an interest rate cut as they have been misled by banks to take out a consumer loan and not a personal housing loan. 

Banks started to lower mortgage interest rates last year to help boost the sluggish real estate market. But since then, their practice of issuing consumer loans, which have a similar interest rate and repayment terms as a housing loan, has been exposed. The granting of consumer loans started around 2021 when lenders only had a limited quota of mortgages they could offer.

“When I asked if my interest rate could be lowered, the Hubei Xiantao Rural Commercial Bank told me that I had applied for a mortgage-like consumer loan, not an actual housing loan,” a man surnamed Liu who lives in the area where the bank is based told Yicai. “My loan is not one of those that can have its interest rates lowered. But I always believed I had applied for a personal housing loan,” he added. 

The bank’s staff members didn’t say anything about it being a consumer loan during his many meetings with them during key moments when paying for the property, signing the purchase contract and applying for the loan, Liu added.

But, when the loan was issued, the bank specified to Liu that the loan is for ‘consumption,’ not housing purchases. Liu did not pay much attention at the time as the interest rate was similar to most mortgage rates. In fact, he has never seen the final version of the loan contract, he said.

Similar things have been happening in Henan, Hebei, and Jiangxi provinces, Yicai discovered. All were issued by rural commercial banks, and most of the borrowers were first-time home buyers and those buying pre-owned housing.

Although several banks have lowered the rates on consumer loans, similar to that of mortgages, some borrowers are still concerned that their consumer loans won’t be eligible for further reductions and that they might be recalled for ‘illegally entry into the property market.’ They are trying to change their consumer loans into housing loans.

Banks have not made any changes as local governments have not issued a rectification program for such situations, Yicai learned.

Banks have not carried out their basic duty of properly informing home buyers, an analyst said. Local banks have more autonomy than large and medium-sized commercial banks and many of them prefer to extend consumer loans, which may lead to irregular operations, said a source with a rural commercial bank.

Editor: Kim Taylor