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China's central bank to peg mortgages with loan prime rate

China's central bank said the country's lenders will be required to price mortgages with reference to the loan prime rate from Oct. 8, instead of the benchmark interest rate as they currently do.

The People's Bank of China said Aug. 25 that mortgages for first-time homebuyers will be charged at least at the five-year loan prime rate, which was set at 4.85% on Aug. 20. Mortgages for second homes will be charged at least 60 basis points above the loan prime rate, which will be at least 5.45% based on the Aug. 20 rate.

The move came after the country introduced loan prime rates, which are refreshed monthly and should reflect market demand more accurately than benchmark interest rates, the central bank added.