The Transmission Effect of Market Interest Rates on Housing Mortgage Loans

【Authors】

ZHONG Chunping & TIAN Min

【WorkUnit】

ZHONG Chunping（National Academy of Economic Strategy, CASS, 100006）；TIAN Min（Hunan University of Technology and Business, 410000）

【Abstract】

Justiniano et al. （2022） attempted to unravel the puzzle of housing interest rates, finding that the decoupling between bond market rates and mortgage rates may have been a key contributor to the subprime mortgage crisis. This finding has spurred global scholarly attention to credit market rates, particularly mortgage rates, and their macroeconomic implications. As the world’s largest developing economy, China’s housing market has grown into the globe’s biggest asset market, with mortgage debt exceeding 8% of GDP—surpassing the pre-crisis peak level in the United States. However, due to limited access to micro-level data, studies on China’s mortgage rate pricing remain scarce, and research examining whether and how bond market rates influence mortgage rates is particularly lacking. 
Using micro-level mortgage loan data from leading commercial banks in a coastal Chinese province, this study provides the first empirical evidence on how medium- to long-term market interest rates affect mortgage pricing. The results show that bond market interest rates have a significant positive impact on mortgage rates, and this relationship holds after robustness tests. Further research finds that market interest rates transmit more efficiently to mortgage loans in non-state-owned banks and central cities such as provincial capitals compared to state-owned banks and non-provincial capital cities and that macroeconomic policy environments and market conditions are key factors influencing mortgage pricing. Among these, economic policy uncertainty exacerbates information asymmetry, thereby weakening interest rate transmission, while moderate interest rate fluctuations help maintain market participants’ sensitivity to rate changes, thus enhancing the pass-through efficiency from market rates to mortgage rates. In addition, expectations play an indirect role in the transmission path, primarily manifesting as a suppression effect that undermines effective rate pass-through.
This paper makes several significant contributions to the existing literature. First, leveraging original mortgage loan data from commercial banks, this study provides the first micro-level analysis of housing loan pricing in China, overcoming the limitations of prior studies that relied on aggregated macro-level data where critical information was often obscured. This approach offers more precise empirical evidence for assessing monetary policy transmission efficiency. Second, departing from the conventional focus on corporate or consumer credit, this study examines housing loan rates by incorporating bond market rates into the analytical framework, significantly broadening the scope of interest rate transmission research. Third, by integrating macroeconomic policy conditions, market volatility, and expectation channels, this study systematically analyzes the transmission pathways from market rates to lending rates, providing fresh evidence to inform the improvement of interest rate liberalization mechanisms.

JEL: F822, F832

【KeyWords】

Housing Mortgage Loan Interest Rates, Market Interest Rates, Expected Transmission Effect, Economic Policy Uncertainty, Interest Rate Volatility