Mortgage reform aims to soothe China's housing market

China reduced downpayment requirements and mortgage rate floors for homebuyers on Thursday while announcing a clear schedule of existing mortgage repricing, a significant move to stabilize the country's housing market.

In a joint statement, the country's central bank The People's Bank of China, or PBOC, and the National Financial Regulatory Administration said that the policy floor for the interest rate of second-home mortgages is adjusted to the level of the loan prime rate (LPR) plus 20 basis points. This marked a notable reduction from the previous floor of the LPR plus 60 basis points.

The PBOC said the nationwide minimum downpayment will be 20 percent for first-time buyers and 30 percent for second-time buyers. Before Thursday's announcement, many cities had adopted a 40 percent downpayment requirement.

From Sept 25, homebuyers can negotiate with lenders to reduce the interest rates of their outstanding mortgages, either by changing the mortgage contracts, or replacing existing mortgages with new ones. The adjusted rates should be no lower than the policy floor of first-home mortgages that the local city adopted when the original loan was issued, the central bank said.

According to the PBOC, this move will help save interest costs for homebuyers, boost consumption and investment, and alleviate early mortgage repayments.

Thanks to the new move, the interest rates of existing mortgages are estimated to drop by around 50 to 60 basis points on average, said analysts with Golden Credit Rating International.