(Bloomberg) -- Chinese banks raised new mortgage costs for the first time in three years, new data from a research firm shows, as narrowing margins are dragged down by a persistent property slump and slowdown in the world’s No. 2 economy.
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The average mortgage rate for buyers’ first homes in 42 big cities inched up to 3.08% in November from a record low of 3.05% in the previous month, the first increase since October 2021, according to data from Singapore-based firm Data Motion International Trading Pte.
That change was surprising since the housing market remains mired in a decline that began three years ago, and has rippled through the economy. Property prices are still falling despite recent signs of an improvement in sales following a stimulus push that began in late September.
Chinese banks battling a record low net interest margin — a key measure of profitability — are under pressure to boost their books, which have become a constraint on the central bank’s ability to further bring down interest rates. Deeper cuts forecast next year are set to intensify the challenge for lenders to find ways to deal with declining loan rates.
Home sales will likely remain challenging in the near future, making the rate increase unjustified from a market perspective, according to Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co.
“It’s likely that regulators guided the banks to raise mortgage rates on new loans in a concerted move, so as to create enough buffer for further and bigger rate reductions next year,” said Shen. “It’ll hit housing demand for sure, but not necessarily nip the early recovery in the bud.”
China in late September moved to lower costs on as much as $5.3 trillion in outstanding mortgages for homeowners to bolster the property market. Central bank governor Pan Gongsheng said at the time the measures would result in an average 50 basis point cut for borrowers and reduce their annual interest expenses by about 150 billion yuan ($20.6 billion).
Price War
Some 17 out of the 42 cities with available data lifted first-home mortgage rates in November, according to figures from Data Motion, which surveys banks’ local branches across Chinese cities. Wuhan, Changsha and Wenzhou cities recorded the biggest increases of 20 basis points.
The uptick trickled down from guidance given by local branches of a supervisory body overseen by the People’s Bank of China, known as the interest rate self-disciplinary mechanism, according to a report by Caixin, citing two unnamed bank executives.
