PBOC reportedly set to rewrite first-time mortgage definition

It could boost the property market.

Mainland media has recently reported that the PBOC held a meeting last Friday with large banks and discussed broadening the definition of first-time mortgages.

According to a research note from Barclays, the report said that the new definition will classify a mortgage application as a first-time mortgage as long as the borrower has no outstanding mortgage loans, regardless whether he/she has had a mortgage before.

As first-time mortgages could enjoy an interest rate discount and are subject to a lower down payment ratio requirement, the measure is meant to boost demand in the property market, the research note said.

Here's more from Barclays:

However, we believe the impact is likely to be moderate, as:

1) the relaxation only applies to a certain group of people, and

2) Mid-Size banks have not been very interested in growing mortgages as they have lower yields than corporate loans,

3) Large banks have already increased mortgages this year.

Thus, depending on the competition, they may only grow mortgages moderately post definition change.

The easing signal is in-line with our view that the downside risk of the property market remains to be a key concern of the government, even though the employment situation has been satisfactory this year.

In our view, if the property market keeps sliding beyond the government’s expectation, stronger measures may be launched, such as lowering the down payment ratio and interest rates for mortgages.

However, more mortgages could add downward pressure on banks' NIMs but could support capital ratios. We maintain our near-term neutral to negative view on China banks.