The mortgage interest rate deviates from LPR to a minimum of 2.7%, and interest rate cuts are negotiable for some existing mortgages.

On September 20, the People's Bank of China authorized the National Interbank Funding Center to announce the latest Loan Prime Rate (LPR). The 1-year LPR for this month stands at 3.0%, and the LPR for over 5 years stands at 3.5%, both remaining unchanged from the previous month. After a 10 basis point cut in May 2025, the LPR has stayed steady for 16 consecutive months.

As the core anchor for mortgage pricing, the unchanged LPR for over 5 years does not mean the mortgage market stays static.

Data from the central bank shows that the weighted average interest rate of newly issued personal housing loans in August was around 3.1%, at a historically low level. The mainstream banks in some cities have pushed the interest rate of first-home mortgages down to around 3%, and a small number of foreign-funded banks can offer a 2.7% rate for high-quality customers that meet strict asset thresholds, 80 basis points lower than the current LPR for over 5 years.

On the existing loan side, the game of early mortgage repayment centered on residents' opportunity cost of capital is still ongoing. In the first half of this year, the balance of national personal housing loans decreased by more than 700 billion yuan on a net basis. At the end of August, the People's Bank of China and the State Administration of Financial Regulation jointly issued a document, allowing borrowers to negotiate with banks to modify the contract interest rate of existing mortgages, which provides a new path to reduce the burden of existing home buyers.

01

Standing Still for 16 Consecutive Months

The LPR in September remains at the original level again, which is in line with the general market expectation beforehand.

From the perspective of the pricing mechanism, the LPR is formed by each quoting bank adding points on the basis of the 7-day reverse repo rate in the open market. As the main policy interest rate, the 7-day reverse repo rate has also stayed at 1.4% without adjustment for 16 consecutive months after being cut in May 2025, and the pricing foundation of LPR quotations has not changed this month.

The domestic economic fundamentals also support the steady LPR. In the first half of this year, China's gross domestic product (GDP) grew by 4.7% year on year, falling within the annual target range of 4.5% to 5.0%. The year-on-year export growth rate in August stood at around 20% for the third consecutive month, and both the year-on-year growth rate of the national consumer price index (CPI) and the national producer price index (PPI) picked up.

Wang Qing, chief macro analyst at Golden Credit Rating, pointed out to Time Finance that the economic growth rate in the first half of this year is within the target range, and the field of new quality productivity represented by high-tech manufacturing is developing at an accelerated pace. This means that although domestic investment and consumption have weakened since the second quarter and the momentum of economic growth has declined, the macro policies maintain strong stability, and the monetary policy continues to be in the observation period. This is the fundamental reason why the LPR quotation in September was not adjusted.

Wen Bin, chief economist of China Minsheng Bank, wrote that the interest rates of newly issued corporate and personal housing loans in August remained at low levels, coupled with a slight rebound in prices, the actual interest rates of various loans have actually seen a marginal decline, and "the necessity to cut the policy interest rate directly is not high".

The practical constraints from the banking system cannot be ignored either. Data from the State Administration of Financial Regulation shows that at the end of the second quarter of this year, the net interest margin of commercial banks was 1.41%. Although it rebounded by 0.01 percentage points from the first quarter, ending the unilateral downward trend since 2022, it is still in a historically low range.

Wen Bin analyzed that since September, the interbank certificate of deposit rate has remained at the level after the rise from July to August, and both the asset side and liability side still put pressure on the net interest margin. Commercial banks lack the incentive to actively cut the LPR quotation when the policy interest rate has not been lowered and the pressure on the net interest margin has not been relieved.

Changes in overseas markets have also added external variables to domestic policy judgments. Since the beginning of this year, the European Central Bank and the Bank of Japan have raised interest rates successively. The Federal Reserve also announced a 25 basis point rate hike on September 19, raising the target interest rate range to 3.75%~4.00%, which is the first rate hike since July 2023. The interest rates in overseas bond markets have generally risen.

Xu Jiaqi, an analyst from the Research and Development Department of Golden Credit Rating, told Time Finance that considering China's monetary policy adheres to the orientation of "putting our own needs first", against the background that domestic demand needs to be boosted and prices are generally stable, the loose tone of domestic monetary policy will continue. In addition, China's bond market is dominated by domestic investors, with a low proportion of foreign capital, so the actual impact of foreign capital outflow is limited. It is expected that the interest rate hikes by foreign central banks will not cause substantial drag on the domestic bond market, but may restrict the downward space of interest rates in the short term.

02

Mortgage Interest Rates "Decouple" from the LPR Benchmark

During the 16 months when the LPR remained unchanged, the mortgage market itself has experienced considerable changes.

On the new issuance side, the decline of actual interest rates is significantly ahead of the LPR benchmark. Data from the central bank shows that the weighted average interest rate of newly issued personal housing loans in August was around 3.1%, 40 basis points lower than the LPR for over 5 years.

At the city level, the pricing competition between banks is more directly reflected. According to Time Finance, taking Guangzhou as an example, the minimum interest rate of first-home mortgages offered by mainstream banks such as Bank of China, Industrial and Commercial Bank of China, China Construction Bank and Postal Savings Bank of China can be implemented at 3% at present; foreign-funded banks such as Standard Chartered and HSBC can offer 2.7%, but this interest rate has high access thresholds, targeting high-quality customers with large financial assets or specific cooperative real estate projects, rather than inclusive quotations for ordinary home buyers.

After the batch cut of provident fund loan interest rates in January this year, the interest rate of first-home provident fund loans for over 5 years in Guangzhou is 2.6%, further narrowing the spread with commercial loans. The "decoupling" between mortgage interest rates and the LPR benchmark relies on banks' independent adjustment of the added points, rather than the change of the benchmark itself.

The actual situation of existing mortgages is more complicated. After several rounds of batch adjustment, the interest rates of existing mortgages have generally dropped to 3.2%~4%. However, from the perspective of residents, the gap between the interest expenditure of existing mortgages and the deposit income is still relatively high. According to the monitoring data of Rong 360, in July 2026, the average interest rate of 3-year lump-sum deposit and withdrawal deposits of banks was 1.683%, and the average 5-year interest rate was 1.560%. Some borrowers who still carry existing mortgages with an interest rate above 4% face obvious pressure on the opportunity cost of capital.

This cost comparison is directly reflected in the credit data. Data from the central bank shows that in the first half of 2026, the balance of personal housing loans was 36.29 trillion yuan, down 3.8% year on year, decreasing by 716.3 billion yuan in the first half of the year. The industry believes that this change is driven by multiple factors such as residents' early principal repayment and the write-off of loans due to natural maturity, and early repayment of mortgages is an important factor driving the decline of the balance. The continuous decline of deposit interest rates has increased residents' willingness to take the initiative to repay loans.

In response to this reality, the regulatory authorities have issued supporting policies. On August 28, according to the *Opinions on Reforming and Improving Real Estate Credit Management and Promoting the Accelerated Construction of a New Development Model for the Real Estate Industry* jointly issued by the People's Bank of China and the State Administration of Financial Regulation, borrowers can negotiate with banking financial institutions to modify the contract interest rate of existing floating-rate mortgages, or apply for new floating-rate personal housing loans to replace the existing loans.

However, behind the continuous decline of mortgage interest rates and the continuous expansion of space to reduce the burden of existing mortgages, commercial banks are under considerable operating pressure, and the space for continuous profit concession is very limited. In the first half of this year, commercial banks realized a total net profit of 1.2 trillion yuan, down 0.6% year on year. The stabilization of net interest margin relies more on the reduction of deposit cost on the liability side.

According to the calculation of Guosheng Securities, the proportion of maturing time deposits of the household sector in the first quarter of 2026 exceeded 60%. The research report of Guosen Securities pointed out that the dividend from the repricing of high-interest deposits will be greatly weakened in the second half of the year. It is estimated that the repricing of high-interest deposits in the first quarter accounts for about 50% of the whole year, and the stabilization resilience of asset-side yield will become the core variable determining the differentiation of net interest margin of listed banks.

A market observer pointed out to Time Finance that the current credit demand on the asset side has not yet recovered substantially, and the pricing of newly issued loans is relatively low. If the interest rate of existing mortgages is further lowered, there are objective constraints on the space for banks to make concessions, which is also the core reason why the new policy in August adopts negotiated modification instead of one-size-fits-all batch adjustment.

Changes in the real estate market also provide another reference for observing interest rate policies. The recently released housing price data of 70 large and medium-sized cities in August from the National Bureau of Statistics shows that in August, the new home price in first-tier cities turned from flat to a 0.1% month-on-month increase, among which Shanghai rose by 0.4%, Shenzhen rose by 0.2%, and Guangzhou rose by 0.1%; the second-hand home prices in first-tier cities recorded positive month-on-month growth for the sixth consecutive month, and the year-on-year decline in cities of all tiers continued to narrow.

"This means that the further decline of mortgage interest rates may not necessarily require the use of the LPR, which is an aggregate tool in the short term. The compression of the added points space, the rebalancing of the spread between provident fund loans and commercial loans, and the opening of the negotiation channel for existing mortgages can all promote the actual interest rate to go out of an independent trend," the above market observer pointed out to Time Finance.

This article is from the WeChat official account "Time Finance APP", written by He Xiulan, and published with authorization by 36Kr.