2018-02-18

Banks Have No Money, Chinese Mortgage Rates Rising

An article in iFeng discussed rising interest rates at Chinese banks to as much as 30 percent over benchmark. Banks were willing to take losses on mortgages a year ago, hoping to earn more from follow on services and products to customers. This year, the banks have tightened up because, according to this piece, they're out of lending capacity.

iFeng: 各地银行陆续上调房贷利率 2018年买房成本增加
People concerned about the property market know that from 2018 onwards, many banks across the country began to announce the floating mortgage rates. For example, the four major state banks in Guangzhou recently announced that the first-home mortgage interest rate will go up to 10% over benchmark, while two other banks in Shenzhen will go up by 20%. Even more exaggerated, there are also two banks that are up to 30%.

...It has also been calculated that a 1 million loans, 30-year period, from a 15% discount a year ago and now the floating 10% above benchmark the interest cost is 270,000 higher, this is not a small number, a thorough validation of the truth that time is money.

So you will find, no matter if the price falls, it will take more and more money to buy a house.

...So the question came, at the beginning of 2018, why banks suddenly tighten mortgages all over the country?

Because the bank is really no money!

There are many reasons for this. The most important thing is that the money management business is under scrutiny.

If we compare the Chinese economy to a towering tree, then the current situation is that the tree trunk is full of holes. If the economic growth is also pursued to develop the branches and leaves, the tree will one day fall to the ground.
The main reason for rising costs and tight credit is the crackdown on shadow lending. Instead of shifting credit risk on to unsophisticated buyers of WMPs (who think the bank and government are implicitly guaranteeing these products) the banks are on the hook for on-balance sheet losses. Additionally, they have to follow strict regulations governing mortgage lending:
Make holes, the first is the local debt, in fact, is the bank. For banks, the loans belong to the table, and wealth management belongs to the off-balance sheet. On the table, the loan examination was strict, plainly, the loans that went out were not good, the leaders should bear the responsibility, the large sum of bad loans, and the resignations from the top to the bottom would not work. They all went in by accident.

However, financial management is not the same, when you buy money management is signed a risk notice, made it clear in extreme cases, the principal and interest will be all losses. Therefore, many companies that are not qualified for loans tap off balance sheet lending. And beyond the imagination, capital flows, brokers, trusts, intermediaries, everyone earns a share of the capital flow.
The article closes by telling buyers the market is rational thanks to tighter credit. Do not to follow the crowd, but make an independent decision.

The past 20 years of Chinese mortgage rates:

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