The central bank relaxes second-home mortgage loans: the housing market cools and bank risks improve, but overall leverage still needs to be observed

The central bank's relaxation of second-home mortgages this time reflects the cooling of the housing market and improvements in bank real estate credit risk control. However, after the change in capital flows, whether the overall household leverage and credit risk are still within the acceptable range still needs to be continuously observed. (File photo)

In September, the central bank relaxed the maximum percentage of second-home mortgage loans for natural persons to 70%. An important factor behind this is that the concentration of bank real estate credit has improved. The latest data shows that as of the end of July this year, the ratio of real estate loans to total loans of all banks dropped to 34.44%, down 3.17 percentage points from the recent high of 37.61% at the end of June 2013.

However, Chen Mengyun, associate director of the market research office of Zhengxin Real Estate Appraisers United Firm, reminded that the decline in real estate loan concentration does not mean that the overall financial leverage has decreased simultaneously. In particular, with the recent increase in corporate financing needs and the booming stock market transactions, there are even phrases such as "four loans under one roof" and "six loans under one roof" appearing in the market. It is also important to observe whether the overall credit risk is really reduced after funds are transferred from real estate to other fields.

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Judging from the credit structure of the five major banks, this change has been quite obvious. In 2013, home purchase loans were approximately 1.1632 billion yuan, which was approximately 973.5 billion yuan higher than capital expenditure loans. By 2014, home purchase loans had dropped to approximately 769.3 billion yuan, while capital expenditure loans were 830.4 billion yuan. For the first time, the scale of home loans lagged behind capital expenditure loans.

In the first seven months of this year, the five major banks undertook new housing purchase loans of approximately 379.9 billion yuan and capital expenditure loans of approximately 531.2 billion yuan, and the gap further widened. Chen Mengyun said that this means that the flow of bank lending is indeed more dispersed. In addition to residential loans, the demand for funds such as corporate investment, factory construction and expansion, working capital and personal finance is also increasing.

Therefore, when the proportion of real estate loans decreases, it cannot simply be understood as "a decrease in housing market leverage." One reason may simply be that other types of lending are growing faster, diluting real estate-related loans as a proportion of total bank lending. In other words, bank funds are indeed less concentrated in the housing market than in the past, but credit and leverage in the market have not disappeared.

From the perspective of household finances, there is currently no large-scale repayment pressure. The central bank's financial stability report shows that at the end of 2014, the household sector's borrowing balance was approximately 25.29 trillion yuan, equivalent to 88.06% of the annual GDP; the overall household loan overdue rate was 0.15%, of which the overdue rate for real estate purchases was only 0.10%, and the credit quality is still stable.

What's really worth noting is that different loan instruments withstand market reversals in different ways. Most mortgages are repaid in long-term installments, but if stock financing or pledges encounter a rapid decline in stock prices, they may face pressure to pay back funds or reduce their shareholdings in a short period of time. If the same household is burdened with mortgage, credit and investment leverage at the same time, debt pressure may emerge at the same time when the stock market corrects, income decreases, or interest rates remain high for a long period of time.

Therefore, Chen Mengyun believes that judging financial risks cannot only look at the concentration of real estate loans. The central bank's relaxation of second-home mortgages this time reflects the cooling of the housing market and improvements in bank real estate credit risk control. However, after the change in capital flows, whether the overall household leverage and credit risk are still within the acceptable range still needs to be continuously observed.