New rules designed to curb people taking out mortgages on a second home have left it up to banks to use their individual discretion on granting loans.

On September 27, the People's Bank of China and the China Banking Regulatory Commission said mortgage holders who apply for another home loan have to produce 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, down payments and interest rate should be even higher, the bank said, with specific figures determined by commercial banks.

However, regulators didn't clearly define a second mortgage, such as whether it is based on an individual's loan or whether other family members can apply for a new loan. Nor did the rules say if the new policy still applies to those who have already paid off their home loan.

Most banks in Shanghai, including the state-owned big four, Bank of Communications, Shanghai Pudong Development Bank, China Merchants Bank and Industrial Bank, said they are still working out detailed rules to follow the authorities' call for the tighter policies. They expect to roll out their new rules later this week.

Banks in other provinces were reported to issue differing policies. For instance, the Beijing branch of China Merchants Bank determines the second mortgage on an individual's loan, while the Jiangsu branch of Bank of China determines whether a family is holding a second loan.

The different practices also trigger the expectation of a universal detailed rule from regulators.

The central bank and the banking regulator were not available for comment on those details yesterday.

The move was a tightening measure to curb property speculation in a booming real estate market.

Su Ning, deputy governor of the People's Bank of China, said it is unlikely that people would apply for a second mortgage at a different bank to duck the tighter credit requirements, because they would be tracked by the central bank's nationwide individual credit database.

An unnamed official from a joint venture bank in Shanghai also admitted yesterday that banks would rather sit on the sidelines and see what rivals were offering, rather than laying down new policies.

Mortgages are the most lucrative personal financial products for banks, explaining why lenders are staying cautious. They must follow the central government's call to curb credit to speculative property transactions and also keep attracting new clients.

(Shanghai Daily October 11, 2007)