(Yicai) Sept. 1 -- Chinese banks will lower the interest rates on existing personal housing loans from Sept. 25 in an effort to expand consumption and investment.

Lenders should issue new loans to replace the existing ones individuals were granted to purchase their first houses or alter the existing mortgage rates, China's National Administration of Financial Regulation and the People's Bank of China said in a joint statement yesterday.

Yicai estimates that interest rates for first-home mortgages would be cut by about 0.8 percentage point.

Lowering interest rates of existing loans will save the interest expenditure of borrowers, promote consumption and investment, and effectively reduce the early repayment of mortgages, mitigating their influence on banks' interest income. Moreover, the move will narrow the room for the illegal practice of using business and consumer loans to replace housing loans, reducing potential risks.

The current mortgage interest rates are relatively high, so borrowers' early repayments have been increasing since this year, said Wang Yifeng, chief banking analyst at Everbright Securities' research institute. This affects the surge in property-related fundraisers and takes up a large proportion of residents' expenditures, leaving little room for other types of consumption, Wand noted.

An insider close to the Chinese regulators told Yicai that lowering the mortgage rates can also ensure the fairness of policies and a smooth and orderly adjustment process and avoid issues such as differences in mortgage interest rates due to different adjustment times.

In yesterday's statement, the NAFR and the PBOC also said lenders should revise the minimum interest rate of housing loans for second-time home buyers to no lower than the loan prime rate of the corresponding term plus 20 basis points from 60 bps.

Moreover, the proportion of minimum down payment for both first- and second-time home buyers will be uniformly revised to no lower than 20 percent and 30 percent of the houses' total prices from 30 percent and 40 percent, respectively.

Editors: Xu Wei, Futura Costaglione