The Beijing branch of Bank of Communications (BoCoM) has
recently given its own definition of a "second" mortgage, which
will base on the house property of the applicant rather than the
applicant's family.
"In Beijing, we will examine whether the loan applicant, either
an individual borrower or a co-borrower, is trying to buy a second
apartment," said Zhang Xin, an official in charge of the credit
management with the BoCoM's Beijing branch.
"If any of the co-borrowers already has a house mortgage that
hasn't been paid off, his or her new loan application will be
considered as a 'second' mortgage. It means the person will have to
face a higher down-payment and interest rate," Zhang explained.
But he stressed that the bank will not check whether the
applicant's spouse has already had an apartment unless the spouse
is registered in the lending account as a co-borrower.
"Co-borrowers can be couples, parents and children, and
sometimes even people of no kinship," he said.
What is a second mortgage has been a topic of controversy after
the central bank decided to raise mortgage deposits for homebuyers
who intend to buy a second apartment, a move aiming to curb
speculation on property transactions.
In late September, the People's Bank of China, the central bank,
and the China Banking Regulatory Commission jointly issued a new
rule that requires mortgage holders who apply for another home loan
to put a down payment of at least 40 percent and pay a 10-percent
premium on their interest rate.
For people seeking a third or fourth mortgage, the down payment
requirement and interest rate is even higher, with specific figures
determined by commercial banks.
A hot debate has since been going on, as the regulators did not
define a "second" mortgage, such as whether it regards a borrower
and his family members as a whole unit or whether a borrower's
families are immune from the new rule.
The authorities have left the right of definition up to
commercial banks themselves, since their situations on loans and
local real estate markets differ, analysts say.
Lenders like China Construction Bank and Bank of China have
taken a tougher line. They define a "second" mortgage based on the
family unit, which means if, say, the husband has already applied
for a mortgage and the wife applies for a new loan on another
property they will have to offer a 40-percent down payment
according to the new rule.
The two banks also stipulated that the new rule would also apply
to a couple who had bought an apartment on mortgage loans before
marriage. The Bank of China even included parents who intend to buy
a second apartment in the name of their underage children into its
list of "second" mortgage applicants.
However, the BoCoM decided to allow its local branches to make
their own definitions instead of giving a definitive
definition.
"We have studied the new rule carefully. A second mortgage based
on the individual or the family does not collide with it. Thus, we
let local branches set their own standards of their practical needs
to tighten supervision and prevent financial risks," said Qian
Wenhui, vice president of the BoCoM.
Analysts point out that lenders remain cautious because
mortgages are the most lucrative personal financial products for
them. They must follow the central government's call to curb credit
on speculative property transactions and also keep attracting new
clients.
A bank official in Shanghai who refused to be named admitted
that banks would rather sit on the sidelines and see what their
rivals' response is than be the first to act to edge out possible
mortgage clients.
Apart from the BoCoM, the Industrial and Commercial Bank of
China and China Merchants Bank also set relatively "loose"
definitions on a "second" mortgage, with the individual's new loan
application not influenced by his spouse's mortgage record.
Another unclear point in the new rule is that whether it shall
be apply to home owners who have already paid off their mortgage
loans and plan to improve their living standard by buying a bigger
apartment.
Most banks, including the big four state-owned banks, have all
set detailed regulations to allow those who have paid up their
mortgages to enjoy the original low down payment and interest rate
when applying for new house loans.
Industry watchers suggest that by issuing the new rule, the
central government aims to squeeze out speculative property buyers
but not to hit home owners who wish to improve their own living
standards.
(Xinhua News Agency November 5, 2007)
