A Chinese bank launches relay mortgages

January 07, 2019 16:37
Chinese banks are scrambling for mortgage clients amid the economic slowdown. Photo: CNS

A branch of Agricultural Bank of China in Hangzhou in eastern China’s Zhejiang province has launched a relay mortgage, which allows parents and their children to jointly apply for a loan.

The bank said the product mainly caters for homebuyers already in their 50s, who have enough money for the down payment but are already too old to qualify for a long-term mortgage.

Under current regulations, the age of a mortgage borrower and the length of the mortgage cannot exceed 70. 

If such parents apply for a mortgage jointly with their kids, who may be college students and are expected to earn a decent living when they graduate, as a family, their ability to repay the loan is somewhat assured. 

Though not offering such a product yet, other banks are relaxing their criteria for mortgage loan approval and resuming the 10 percent interest rate discount for first-time buyers. 

The industry’s scramble for mortgage clients came amid China’s economic slowdown. 

Though the central bank is easing the monetary policy by cutting the reserve requirement ratio, the problem with banks is not the lack of liquidity, but rather the lack of good lending targets. 

Given the importance of the property sector and the relatively low risk of mortgage assets, and the positive signal from numerous local governments that are easing their home policy lately, banks are stepping up efforts to expand their mortgage portfolios. 

For banks, that is good business. If housing prices remain stable and more people are willing to buy homes, such a condition would rejuvenate investment in upstream and downstream sectors and help shore up the national economy.  

Would products like relay loans lead to overgearing and go against Beijing’s previous plan to deleverage and fight property speculation? Maybe.  

But the imminent threat of a sharp economic slowdown is the overriding concern. 

This article appeared in the Hong Kong Economic Journal on Jan 7 

Translation by Julie Zhu 

[Chinese version 中文版

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Hong Kong Economic Journal columnist