China’s central bank on Tuesday unveiled its largest stimulus in years, aiming to stabilize the property market and boost consumer confidence.

The plan includes cutting mortgage rates for existing homes and lowering down payment requirements for second properties, measures expected to impact millions of households across the country.

Addressing a news conference in Beijing, Pan Gongsheng, governor of the People’s Bank of China, said that mortgage rates for existing homes would be cut by about 0.5 percentage points to better align with rates on new loans.

“The move is expected to benefit around 50 million households, affecting roughly 150 million people, and reduce annual interest payments by an estimated 150 billion yuan ($21.3 billion), which will help boost consumption and investment,” he said.

The policy change aims to address rising concerns over early mortgage repayments. Currently, the average rate for existing mortgages is about 4%, while new mortgage rates have dropped to 3.45%, according to state-owned financial outlet Securities Times. The widening gap has prompted many borrowers to repay their loans ahead of schedule.

The PBOC’s announcement comes just after the U.S. Federal Reserve cut its rates last week, opening the door for China to adjust its own policies. State-run media had emphasized the need for mortgage rate cuts to revive consumer confidence, stabilize housing market expectations, and ease financial pressure on homeowners.

Following the slew of measures, the Shanghai Composite Index jumped more than 4% on Tuesday, while the Hang Seng Index in Hong Kong climbed 4.13%.

Tuesday’s rate cut marks the second nationwide reduction in existing mortgage rates. In August 2023, rates fell by an average of 73 basis points, resulting in fewer borrowers paying off their loans early, according to PBOC data.

Additionally, the latest measures lower the minimum down payment for second homes from 25% to 15%, matching the requirement for first-home purchases. The reduction is expected to lower barriers for second-home buyers and stimulate demand for upgrades or relocations.

“This policy simultaneously addresses existing mortgages and new home demand, providing extensive coverage and significant benefits,” Yan Yuejin, research director at the E-House R&D Institute in Shanghai, told Sixth Tone.

Describing it as “the most impactful mortgage policy to date,” Yan estimated that the new policy will help families repaying a 1-million-yuan loan over 30 years save around 100,000 yuan.

The PBOC also outlined plans to support real estate companies in acquiring land, including potential measures for policy and commercial banks to extend loans to eligible firms. It also announced a reduction in the reserve requirement ratio by 0.5 percentage points, a move expected to inject about 1 trillion yuan into the financial market to boost liquidity.

The PBOC’s announcement is part of a broader set of strategies China has introduced to address challenges in the real estate sector.

In July, officials proposed eliminating the distinction between “ordinary” and “non-ordinary” housing, effectively waiving additional taxes on luxury properties. And on Sept. 20, Beijing unveiled its plan to implement the proposal “at an appropriate time,” following similar initiatives in Shanxi and Jiangsu provinces.

“The new policies send positive signals not just for real estate but for the overall economy,” Lu Wenxi, an analyst at Hong Kong’s Centaline Property, told Sixth Tone. “The market has high expectations for these policies, and today’s timely response will soon be reflected in the release of market demand.”

Editor: Apurva.

(Header image: VCG)