The interest rate for first-home mortgages nationwide is set to enter the era of "starting with 2", saving RMB 20,000 for a 30-year mortgage of RMB 1 million

The central bank's interest rate cut policy was implemented as scheduled, and the Loan Prime Rate (LPR) was adjusted accordingly.

On May 20, the LPR quotes for May were released: the LPR for loans with a maturity of over five years was 3.5%, down from 3.6% the previous month. The LPR for one-year loans was 3%, down from 3.1% the previous month.

This is a significant move in monetary policy following the central bank's announcement of RRR cuts and interest rate cuts in early May.

Researchers pointed out that with the five-year LPR falling to a historical low, the mortgage rate on existing home loans for first-time homebuyers nationwide will enter the "2%" era, further reducing the monthly mortgage payment costs for homebuyers. Coupled with policies such as the reduction in the housing provident fund interest rate and adjustments to the mortgage rate on existing home loans, the real estate market is set to undergo a new round of systematic cost optimization.

For example, if a commercial loan of 1 million yuan is taken out for 30 years with equal principal and interest repayments, a 10 basis point drop in the LPR will reduce the monthly mortgage payment by 56 yuan, resulting in a cumulative reduction of 20,000 yuan over 30 years.

The mortgage rate on existing home loans for first-time homebuyers nationwide is expected to fall to 2.95%.

"Currently, the policy floor for mortgage rates on first-time and second-time home purchases has been lifted nationwide, and the mortgage rate on existing home loans for first-time homebuyers in many cities has already fallen to a historical low of around 3.0%. This reduction in the LPR for loans with a maturity of over five years will help guide mortgage rates to fall further across the country, continuing to reduce the home purchase costs for homebuyers," said Chen Wenjing, Director of Policy Research at the China Index Academy.

Zhang Dawei, Chief Analyst at Centaline Property, also told reporters, "This 10 basis point drop in the LPR means that the mortgage rate on existing home loans for first-time homebuyers nationwide, which has hovered around the 3% mark for nearly a year, will now enter the 2% range."

According to statistics from the Centaline Property Research Institute, the weighted average interest rate for newly issued commercial personal housing loans nationwide in Q1 2025 was 3.11%, showing a slight fluctuation from 3.10% in Q4 2024 (it was around 3.33% in Q3 2024). The average mortgage rate on existing home loans for first-time homebuyers was around 3.06%.

"It is expected that after this interest rate cut, the mortgage rate on existing home loans for first-time homebuyers nationwide will fall to around 2.95%," Zhang Dawei said.

He further stated that before the interest rate cut, the mortgage rate on existing home loans for first-time homebuyers in most cities had already fallen to between 2.8% and 3%. Currently, the mortgage rates on existing home loans for first-time homebuyers in Beijing, Shanghai, and Shenzhen are all LPR-45BP. After this interest rate cut, the highest mortgage rate on existing home loans for first-time homebuyers in first-tier cities will fall to 3.05%, while other cities will see a comprehensive reduction to around 2.9%.

Taking Beijing as an example, the previously implemented mortgage rates on existing home loans for first-time and second-time home purchases were 3.15% (LPR-45BP) and 3.35% (outside the Fifth Ring Road, LPR-25BP)/3.55% (inside the Fifth Ring Road, LPR-5BP), respectively. After this adjustment, the mortgage rates on existing home loans for first-time and second-time home purchases in Beijing are expected to be adjusted to 3.05% (LPR-45BP) and 3.25% (outside the Fifth Ring Road, LPR-25BP)/3.45% (inside the Fifth Ring Road, LPR-5BP), respectively. Among them, the mortgage rates on existing home loans for first-time home purchases and second-time home purchases outside the Fifth Ring Road have both fallen to historical lows.

For homebuyers, the benefits of an interest rate cut are evident. An industry insider told reporters that over a 30-year repayment period, the cumulative interest savings from this interest rate cut would be substantial. Many potential homebuyers who were previously deterred by high interest rates now find their home-buying plans more feasible as costs decrease following the interest rate reduction.

Chen Wenjing believes that the recent LPR reduction will also drive down the mortgage rate on existing home loans. After the mortgage rate re-pricing date, the mortgage rate on existing home loans can follow suit and decrease, thereby reducing the repayment pressure on homeowners who have already purchased properties.

Looking back at history, according to statistics from Centaline Property, the Loan Prime Rate (LPR) has undergone multiple reductions, with a cumulative decline of 60 basis points. Zhang Dawei stated that, observing the trend, amidst a complex economic environment, the market expects monetary policy to become more accommodative. "With the reduction in deposit interest rates, it is likely that mortgage rates will continue to decline in the future."

Conducive to consolidating the stable trend of the real estate market

The recent LPR reduction is not an isolated event but a key part of the central bank's series of stimulus policy packages.

On May 7, departments such as the People's Bank of China (PBOC), the National Financial Regulatory Administration, and the China Securities Regulatory Commission held a press conference, during which the PBOC governor announced a reduction in the reserve requirement ratio (RRR) and policy interest rates. Specifically, the interest rate for the 7-day reverse repo operations in the open market was lowered from the current 1.5% to 1.4%, and it is expected that this will lead to a synchronous decline of approximately 0.1 percentage point in the Loan Prime Rate (LPR).

Subsequently, on May 20, the 1-year and over-5-year LPRs were reduced by 10 basis points, with the reduction in line with market expectations.

In addition, on May 7, the PBOC also announced a 0.5 percentage point reduction in the RRR, which is expected to provide approximately 1 trillion yuan in long-term liquidity to the market; a 0.25 percentage point reduction in the interest rate for individual housing provident fund loans, with the interest rate for first-time home purchases with a term of over five years lowered from 2.85% to 2.6%, and interest rates for other terms adjusted accordingly.

"Overall, there are still many external uncertainties and instability factors recently. The successive implementation of RRR and interest rate cuts since May will help consolidate the stable operation of the macro economy and also contribute to the stability of the real estate market," Chen Wenjing said.

Industry insiders pointed out that with the reduction in housing provident fund loan interest rates and the recent reduction in the over-5-year LPR, the cost of home purchases for homebuyers will be further reduced, supporting the release of residents' housing demand.

According to a research report by Orient Securities, the decline in new home sales volume in the first quarter of this year narrowed significantly, with signs of price stabilization emerging in some high-tier cities. The second-hand housing market continued the trend of volume discount.

Pan Gongsheng, governor of the People's Bank of China, previously stated, "Based on the economic and financial performance and the effectiveness of various policy tools, we can further expand the scale of these tools and improve their policy elements." Consequently, Chen Wenjing anticipates that in the future, more policies providing financial support for the real estate sector are expected to continue to be implemented, such as financial policies to support the sale of completed homes and funding for urban renewal projects.

"Given the seasonal effects and fluctuations in exports during Q2, the real estate market is facing certain downward pressure. It is expected that real estate policies in Q2 will lean towards providing a safety net rather than strong stimulus measures. There may be policies introduced to optimize the acquisition and storage of commercial housing, as well as supporting policies for urban village renovation. Some industry experts also believe there is a possibility of further easing in first-tier cities. If these measures are implemented, they will play a role in further stabilizing market expectations," said Zhao Xuxiang, an analyst at Orient Securities.