China slashes mortgage reference rates to revive property market

SHANGHAI/SINGAPORE: China announced its biggest ever reduction in the benchmark mortgage rate on Tuesday, as authorities sought to prop up the struggling property market and broader economy.

The 25-basis point cut to the five-year loan prime rate (LPR) was the largest since the reference rate was introduced in 2019 and far more than analysts had expected.

“This is the biggest signal. In other words, the largest interest rate cut cycle in history has begun,” said Yan Yuejin, analyst at E-House China Research and Development Institution. The cut will directly impact the real estate sector by lowering mortgage costs, he said.

The five-year loan prime rate (LPR) was lowered by 25 basis points to 3.95% from 4.20% previously, while the one-year LPR was left unchanged at 3.45%.

Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages.

In a Reuters poll of 27 market watchers conducted this week, 25 expected a reduction to the five-year LPR. They projected a cut of five to 15 basis points.