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Homebuyers find ways around loan laws

2010-06-22 14:20:31Source:Global TimesAuthor:

Homebuyers have begun using their existing houses as collateral to get loans to buy more apartments in reaction to tightening mortgage regulations introduced by the China Banking Regulatory Commission (CBRC) in April.

The number of consumers came to the company for mortgage loans increased dramatically in the past month, according to 5A Home Loan Services, a real estate and finance company.

"We have four groups of employees to deal with the applications, but are still very busy every day," Zhou Guoxiang, an employee of 5A Home Loan Services said.

According to the data collected by the Beijing Chaoyang District Housing Administration Bureau, half of mortgage applications are using existing homes as collateral.

"Because of credit tightening policies, people who already have multiple houses and want to buy more in installments come here, even though the interest rates are high," Zhou said.

Under current CBRC regulations, buyers of second houses have to make down payments of no less than 50 percent of the total value of the property, and take loans out with an interest rate 1.1 times China's benchmark interest rate. Banks have also been empowered to suspend granting loans to buyers who want to purchase a third house.

"If a consumer who has already applied for a mortgage twice wants to buy an apartment that costs 1.5 million yuan ($219,699.75) only has 500,000 yuan ($73,233.25), he could not successfully get loans directly from banks," Zhou said.

"But he could use one of his existing houses as collateral and get a loan, but the interest rate would be 1.2 times the normal present interest rate."

Song Qinyu, a researcher with Centaline China, a real estate agency, said this would not become a long-term phenomenon that would put more pressure on the rising house prices.

The interest rates are too high for this buying method to be used as a tool for speculation, she said.