China mulls mortgage rate cuts to boost economy

China is contemplating reducing interest rates on mortgages  valued at up to $5.3-trillion in two phases to decrease borrowing costs for many families and ease pressure on the banking system’s profits.

Financial regulators are considering a plan to lower rates on existing mortgages by a total of around 80 basis points nationwide. This proposal also includes expediting the timeline for mortgage refinancing eligibility.

The first-rate cut could happen in the coming weeks, with the second cut scheduled for the start of next year, according to sources familiar with the situation who requested anonymity.

This potential move, which would apply to both first and second homes, aims to reduce borrowing costs for millions of Chinese households. However, it also poses challenges for banks, which have already seen their profit margins decline.

Analysts estimate that such a rate cut could save homeowners 300 billion yuan in interest payments annually. However, it could also lead to a contraction in bank margins and potentially impact their earnings.

Attribution: Bloomberg

Subediting: M. S. Salama