China Everbright Bank will be the first lender in China to offer
fixed-rate mortgages to home buyers in major Chinese cities,
including Shanghai and Beijing.
The Beijing-based bank will provide individual housing loans at
a fixed-rate during the life of the loan, no matter what changes
the central bank makes to its interest rates.
Banking regulators approved this new service to help home owners
hedge against fluctuating interest rates, which are expected to
rise in the future.
Analyst said the product will help the bank attract customers
who prefer stability. They said the practice should benefit home
buyers in the short term as interest rates are expected to raise in
the coming few years.
"In the face of such uncertainty (about interest rates), the
bank certainly has its advantage as it knows more about the trends
in interest rates than mortgage appliers," said Wu Yonggang, a
banking analyst at Guotai and Jun'an Securities Co.
China Everbright Bank said it hasn't decided on the initial
fixed-rate yet, but Wu predicted it would be probably be slightly
higher than the current floating rate many banks have adopted.
According to the central bank, the benchmark floating rate for
five-year mortgages is 6.12 percent. Lenders can cut the rate by up
to 10 percent for important customers.
Wu predicted more banks around the country will apply for
permission to offer fixed-rate mortgages in the near future.
Pudong Development Bank and China Construction Bank have applied
to regulators for permission to offer fixed-rate loans.
Business insider said the move was led by the government's
effort to boost the housing loan market by lowering thresholds and
offering preferential policies to spur the housing market, which
has been in a slump recently.
"It will trigger a battle among banks to attract customers
rather than spur the housing market. The market is really dominated
by housing prices," said Liu Luqun, a consultant at Shanghai Erhai
Investment and Consulting Co Ltd. "People will not rush to buy
houses just because the uncertainty about interest rates is
reduced."
China's benchmark interest rates have risen by more than 21
percent since 2002. The benchmark rate rose from 5.04 percent in
2002 to 5.31 percent in 2004, and 6.12 percent last year.
(Shanghai Daily January 7, 2006)