BEIJING, Feb 17 (Reuters) – China has been slicing mortgage charges since final yr to spice up gross sales in its moribund property market, however the primary outcome up to now has merely been a rush by households to repay current mortgages early, doubtlessly squeezing banks’ income.

Analysts estimate that almost $700 billion of mortgages – near one-eighth China’s excellent whole – have been pay as you go since early final yr, when banks began to decrease borrowing charges.

Mortgage holders, feeling unduly burdened by the upper charges they took on in years previous, are tapping their private financial savings or taking out low cost loans beneath stimulus applications supposed for big-ticket shopper purchases or for beginning new companies.

This threatens banks’ income on mortgages, which accounted for about 30% of excellent loans at China’s 5 largest banks as of final June, in line with their newest monetary stories.

It additionally highlights, nonetheless, how mortgage price cuts and different measures to help China’s faltering property sector, hit by a hunch in demand and a money crunch at main builders, have but to ship a significant restoration, whilst current information present the market is stabilising. Analysts count on a restoration will solely kick in in direction of the second half of this yr.

“From the banks’ standpoint, early mortgage reimbursement means funds are paid again to banks, and will assist fund new mortgage loans, however the subject is poor shopping for sentiment,” mentioned Yan Yuejin, an analyst at E-house China Analysis and Improvement Establishment, a Shanghai-based property providers firm.

The present disinterest in new dwelling purchases contrasts sharply with the overheated property market of prior years, when authorities saved mortgage charges excessive to chill hypothesis.

About 17.7 trillion yuan ($2.6 trillion) of mortgages, almost half the present excellent whole, had been granted between the fourth quarter of 2017 and the primary quarter in 2022 at comparatively excessive charges of 5.26% to five.72%, mentioned Judy Zhang, a banking analyst at Citigroup.

In direction of the center of final yr, nonetheless, regulators started decreasing benchmark mortgage charges to prop up property demand, after a liquidity disaster amongst builders despatched dwelling costs and gross sales right into a downward spiral.

In accordance with a survey by Chinese language mortgage information supplier Rong360 in January, the typical mortgage price for first-time dwelling patrons in December was 4.16%, down 137 foundation factors from a yr earlier and the bottom because the survey started in 2015.

PROPERTY SLUMP

Disgruntled householders saddled with the older, greater charges responded by paying off their mortgages early: Citigroup’s Zhang estimates that pay as you go mortgages totalled 4.68 trillion yuan final yr, in contrast with China’s whole excellent mortgages of 38.8 trillion yuan at end-2022, in line with central financial institution information.

Zhang wrote in a current word that heavy prepayments may persist for higher-rate mortgages, knocking as much as 5% off Chinese language banks’ earnings this yr in a worst-case state of affairs.

A delivery worker in Shanghai who gave solely his surname Wang mentioned he saved not less than 200,000 yuan final month by taking out a lower-rate shopper items mortgage to pay down his authentic mortgage on an house within the close by metropolis of Suzhou.

“I made a decision to take action as a result of I am burdened with a mortgage price that is too excessive,” Wang mentioned. He declined to provide his full title because of the sensitivity of the matter.

Some banks have tried to stem the tide of prepayments by including pink tape and slowing the processing of purposes, forcing some debtors to attend for months for approvals, native media have reported.

A banker on the Beijing department of a business financial institution mentioned about 20% of current shoppers had utilized to prepay mortgages and his financial institution had stretched the approval course of to about half a yr.

“Banks are attempting to stall for time,” the banker mentioned. He declined to be named as he was not authorised to talk to the media.

The push of prepayments has continued into this yr, with the boring outlook for returns on investments similar to shares and bonds additionally encouraging cash-rich debtors to repay money owed, mentioned Nicholas Zhu, a banking analyst at Moody’s.

He anticipated this deleveraging to undermine confidence within the property market, which has already been badly shaken by the liquidity disaster and slumping gross sales.

The authorities have signalled concern over the rise of prepayments, and final week China’s central financial institution and prime banking regulator met with lenders to debate methods to deal with the difficulty, the state-backed China Banking and Insurance coverage Information reported.

The regulators mentioned they might step up investigations and penalties for the misuse of enterprise and shopper loans, in line with the report.

Nonetheless, the authorities are probably eager to keep away from additional angering homebuyers, who created a stir final yr with protests over closely indebted builders that failed to finish initiatives on time.

The regulators mentioned banks shouldn’t impose restrictions on certified householders seeking to prepay their dwelling loans and may defend the legit pursuits of financial institution prospects, the report mentioned.

($1 = 6.8545 Chinese language yuan renminbi)

Reporting by Ziyi Tang, Liangping Gao and Ryan Woo; Further reporting by Kevin Huang and Jason Xue; Enhancing by Edmund Klamann

Our Requirements: The Thomson Reuters Belief Ideas.