Tough credit haunts homebuyers

Rising mortgage rates rock market; prudent policy on horizon gives hope

First-tier cities in China have been raising mortgage rates for homebuyers toward the maximum 20 percent since the Chinese New Year began on Feb 16, indicating potential credit problems for real estate buyers.

Among the 30 banks in Shanghai that provide home loans, 13 have raised their interest rate for first-time homebuyers. The maximum rise was 1.2 times the benchmark interest rate of 4.9 percent.

Nine banks are offering the base rate of 4.9 percent for buyers who do not own any property. Only eight banks continue to offer interest rates of up to 10 percent, according to data from services search platform Rong360.

"It's time for buyers to make a choice whether to wait for an uncertain period of time to avail home loans at the benchmark interest rate, or to accept an interest rate hike of between 10 percent and 20 percent for now," said a mortgage broker at a bank in Shanghai in a program on China National Radio.

In Beijing, personal loan managers at China's four largest banks said home loan interest rates hiked at least by 5 percent for first-time buyers, while Ping An Bank and China Minsheng Bank increased their home loan interest rates by 10 to 20 percent, 21st Century Business Herald reported.

In Guangzhou and Shenzhen in South China's Guangdong province, homebuyers without any existing loans against their name can apply for a mortgage rate 1.1 times the benchmark from China's four largest banks.

"Credit data suggest some major commercial banks are adjusting their interest rates as the financial sector is tightening measures, which may make home loan applications more difficult," said Yan Yuejin, research director at the E-House China R&D Institute.

Owing to credit tightening, loan applications have been prolonged, with more applications getting rejected. "Between 10 percent and 30 percent of the applications are turned down at the moment, and the loan application period has been extended from 14 working days to at least five weeks," said Yu Jiajun, a broker with property consultancy Centaline Shanghai.

New personal home loans in Shanghai dropped to 29 billion yuan ($4.57 billion) and 4.95 billion yuan in the third and fourth quarters of last year respectively, and the total personal home loans in the second half of 2017 accounted for only less than 30 percent of the first half. They were also less by 108 billion yuan year-on-year, data from the Shanghai head office of the People's Bank of China showed.

The macro control policies that took effect last year have already cooled China's home market in major cities. Data from the National Bureau of Statistics showed that the year-on-year growth rate of new home prices in first-tier cities had turned negative in January. Pre-owned home price growth rate declined for 16 months in a row.

In order to protect the health of credit market, China Citic Bank has suspended home mortgages in Beijing as at the end of February, but such adjustment should not influence the normal home loan applications in the Chinese capital, an anonymous source from Citic Bank was quoted as saying by Beijing News.

"Each bank has an annual loan limit, so the suspension is possibly an attempt to optimize the bank's loan structure in the long term," said Yan of E-House.

"The majority of home loans are still applied through the nation's major banks, and mortgage service suspension in smaller banks like Citic should not affect home buying in general."

In contrast to the overheated home market conditions of the past few years, the coming year is going to stabilize the situation, with a prudent monetary policy and tightened credit measures in the pipeline, said Zhou Jing, head of project sales with JLL Shanghai, a property consultancy.