Higher Rates or Longer Waiting Times Are the Options as Regulatory Impact on Mortgages Hits Banks
Xia Xinyu
/SOURCE : Yicai
Higher Rates or Longer Waiting Times Are the Options as Regulatory Impact on Mortgages Hits Banks

(Yicai Global) June 7 -- As an incident to stiffer government regulation of real estate and reinforced de-leveraging in the financial market, the popularity of the mortgage business banks once viewed as less risky is now waning.

Two Shanghai joint-venture banks have lifted the strike rate for the mortgages of first-time home purchases to 110 percent of the benchmark interest rate, as the managers of several Shanghai branch offices recently told Yicai Global.

These banks' newly-increased mortgage business has in general been sluggish.

Other first-tier cities are also seeing a similar business adjustment. Many small- and mid-size banks in Beijing and Guangzhou have also lately lifted their minimum rate for first-time home mortgages, with some banks raising the rate for first-timers to 110 percent of the benchmark, and further upping the rate for second homes to 120 percent.

"Higher interest rates or longer waiting times," a source in the retail business department of a joint-venture bank's Shanghai office remarked to Yicai Global about the adjustment in mortgage rate policies. This bank now has started granting loans based on the sequence of interest rate levels, rather than the order in which applications come in.

In other words, only applicants able to afford a higher interest rate hike will be able to get their loans soon, while those who shy from a higher rate hike are liable to wait for several months.

Some banks with relatively more quotas for loans also conducted certain adjustments in their mortgage pricing.

One bank whose mortgage rate is still affordable currently retains a 5 percent discount in its mortgage rate for first homes, but the overall rate must be adjusted to a level above the benchmark, an insider said. This bank branch's strategy is to grant a loan with a 5 percent discount and a loan at a rate of as much as 1.1 times the benchmark concurrently. Furthermore, it grants loans based on the sequence of interest rate levels.

Against the current background of strained liquidity and an upward interest rate trajectory, banks maintaining their former mortgage rates are just like those who do volunteer work, said a manager in the personal loan department of a joint-venture bank's Shanghai branch.

Banks' considerations are as follows: as administration of credit risks, policy risks and liquidity risks hardens, the pricing for capital soon spirals upward.

Among all these considerations of structural adjustment, macro regulation of the real estate market is the most significant indicator for them, a manager in the general retail department of a joint-venture bank told Yicai Global.

Many professionals in bank branches have identified the import local regulators attach to banks' mortgage scales. Regulators even examine the increments and balances each month. "We have to control our loan limits each month," said a manager in the personal loan department in the above bank.

Banks last year deemed personal mortgages as a strategic prop, whereas mortgages have now become a target of regulators for loan scale.

The new trend among banks this year is to set aside more quotas for the consumer credit business, as well as to recoup mortgage loans, said the above source in the retail department of a joint-venture bank's headquarters that has increased its mortgage rate.

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Keywords: PROPERTY , MORTGAGE , Loan , Interest Rate , Deleverage , Financial Risk