Major State-run lenders started to become more stringent on mortgage loan disbursements, after the recent government warning on the inherent risks in the sizzling realty market and the need to curb speculative purchases.

Most of the lenders have followed the steps of Bank of China (BOC), the nation's third largest lender by market value, which reduced the discounts on some mortgages on Feb 3.

The other lenders are also scaling back the preferential interest rates offered to mortgages, citing concerns over growing property market risks.

According to reports, besides BOC, the other big lenders like the Industrial and Commercial Bank of China, China Construction Bank (CCB) and Agricultural Bank of China, have cut mortgage rate discounts for first-home buyers to between 15 percent and 20 percent from the original 30 percent.

With the government keeping close tabs on the sizzling real estate market, the China Banking Regulatory Commission has asked banks to also follow suit and refrain from disbursements to developers who hoard land and put off home sales.

However, sources close to the regulator said no extra limitations have been imposed on mortgage lending. In other words, this means that there will be no change in the stipulated 40 percent down payment ceiling for second home-buyers.

Commercial lenders can, however, set the mortgage price based on the individual borrower's risk score and formulate their own mortgage lending policy, the sources said.

The regulator has asked commercial lenders to offer 30 percent discounts from the benchmark rate for first mortgages as part of the efforts to prop up the ailing realty market in late 2008, during the global financial crisis.

With lenders flooding the economy with 9.59 trillion yuan in new loans last year, the country's individual home mortgage lending rose 1.4 trillion yuan, up 47.9 percent from 2008, according to the People's Bank of China.

Analysts said a markup in the mortgage loan interest rate is necessary to curb speculative purchases, but it might also deter borrowers who intend to buy homes for own use.

Banks are unlikely to slow down mortgage lending significantly this year, as it is still a profit-making business for commercial banks. Chen Zuofu, vice-president of CCB, the nation's largest mortgage lender, said mortgage loans would still account for one third of the total lending this year.

(China Daily April 6, 2010)