(Yicai) Sept. 1 -- Chinese banks have begun accepting applications for 40-year mortgages after regulators last week raised the maximum payback period by a decade as part of a package of measures aimed at lowering monthly payments and further reviving the nation’s property market.

China Construction Bank is accepting requests from existing borrowers to adjust their mortgage terms, the lender’s app shows. Other banks told Yicai that clients can now apply for 40-year mortgages, subject to approval. Meanwhile, some bank branches in Beijing, Shandong, and other provincial-level regions are still processing 30-year home loans, pending implantation of the new rule and system updates.

On Aug. 28, the People's Bank of China and the National Financial Regulatory Administration issued new housing finance reforms that go beyond longer mortgage maturities. Banks are now also permitted to grant repayment extensions to borrowers in temporary financial difficulty, though it should not exceed half of the original term, and the original term plus the extension should not exceed 40 years.

The regulators also raised the ceiling on borrowers’ total monthly debt obligation relative to income to 60 percent from 55 percent.

The practical effect of the policy change can be illustrated by a standard mortgage calculation. For a CNY3 million (USD446,400) mortgage with a 3.05 percent interest rate and repaid in equal monthly installments, a 30-year loan would require monthly payments of CNY12,730 (USD1,895) and generate total interest costs of CNY1.6 million. Extending the term to 40 years lowers the monthly repayment to CNY10,830, though borrowers would ultimately pay more interest over the life of the loan.

The new rule cuts the average monthly payment by about 15 percent, which could encourage home buying, said Hu Yuwei, chief policy analyst at China Securities.

China’s property market slump has been going on for five years, but is showing tentative signs of stabilizing, mainly in tier-one cities, amid a “whitelist” initiative that allows cities to nominate eligible housing projects for bank financing to ensure construction and delivery and policy easing to boost buyer confidence and sales.

“Mature mortgage markets, such as the United States, Canada, Australia, and Germany, all offer mortgages of a maximum 30 years, while some demographically aging countries, including Japan and South Korea, allow mortgage terms of up to 50 years,” Hu explained. “A 40-year repayment term, with the policy intent of 'trading time for space,' falls within a reasonable range.”

“Lengthening the mortgage term can effectively reduce monthly payments, ease repayment pressure, and improve homebuyers’ borrowing capacity, which is particularly positive for first-time homebuyers and households seeking to upgrade their living conditions,” said Chen Wenjing, director of policy research at the China Index Academy.

Longer terms and adjusted repayment arrangements can reduce the likelihood that households with fundamentally sound long-term repayment ability will default because of temporary income disruptions, according to China International Capital Corporation. Still, long-run debt-servicing ability ultimately depends on household income growth and employment prospects, the CICC  noted.

China’s six large state-owned banks had lent a combined CNY24.63 trillion (USD3.66 trillion) through mortgages as of June 30, down CNY508.3 billion (USD75.6 billion) from Dec. 31, according to their latest financial statements. Last year, the total shrank by CNY696.6 billion.

Outstanding individual mortgages fell by CNY716.3 billion to CNY36.29 trillion in the first half of the year, according to PBOC data. The figure declined by CNY827.1 billion in the first seven months, compared with an increase of about CNY672.9 billion a year earlier.

Editor: Futura Costaglione