(Yicai) Sept. 1 -- Some Chinese banks have already started accepting applications for individual housing loans with terms of 40 years, after the country introduced a new package of property rules extending the maximum mortgage term from 30 years.

China Construction Bank has opened applications for existing customers to adjust mortgage terms, Yicai learned from the lender’s app yesterday. Some other banks told Yicai that clients can already apply for 40-year mortgages, subject to approval. 

However, some bank branches in Beijing, Shandong, and other provincial-level regions are still processing 30-year mortgages as they are pending official system adjustments and corporate rule changes.

On Aug. 28, the People's Bank of China and the National Financial Regulatory Administration released new property rules, including lengthening the maximum term for mortgages to 40 from 30 years, including granting extensions to existing borrowers facing repayment difficulties. The cumulative extension should not exceed half of the original loan term, and the original term plus the extension should not exceed 40 years.

For a 30-year mortgage of CNY3 million (USD446,400) at an interest rate of 3.05 percent, repaid in equal installments, the monthly payment is CNY12,730 (USD1,895), with a total interest of CNY1.6 million. If the term is extended to 40 years, the monthly payment drops to CNY10,830, with the total interest increasing accordingly.

The new rule lowers the average monthly payments by about 15 percent, which could effectively stimulate home-buying demand, said Hu Yuwei, chief policy analyst at China Securities.

“Mature mortgage markets, such as the United States, Canada, Australia, and Germany, all offer mortgages of maximum 30 years, while some aging countries, including Japan and South Korea, allow mortgage terms of up to 50 years,” Hu explained. “A 40-year repayment term, with the policy intent of 'trading time for space,' falls within a reasonable range.”

“Lengthening the mortgage term can effectively reduce monthly payments, ease repayment pressure, and improve homebuyers’ borrowing capacity, which is particularly favorable for first-time home buyers and households seeking to improve their living conditions,” said Chen Wenjing, director of policy research at the China Index Academy.

Extending terms and adjusting repayment arrangements can prevent households with long-term repayment capacity from being forced to default because of temporary income fluctuations, according to China International Capital Corporation. However, households' ultimate repayment capacity still depends on income and employment expectations.

China’s six large state-owned banks had combined outstanding mortgages of CNY24.63 trillion (USD3.66 trillion) as of June 30, down by CNY508.3 billion (USD75.6 billion) from Dec. 31, according to their semiannual financial statements. Last year, their total outstanding mortgages shrank by CNY696.6 billion.

China’s household loans fell by CNY716.3 billion to CNY36.29 trillion in the first half of the year, according to PBOC data. The outstanding individual mortgages declined by CNY827.1 billion in the first seven months, compared with an increase of about CNY672.9 billion a year earlier.

Editor: Futura Costaglione