In August 2026, China’s central bank and the National Financial Regulatory Administration (NFRA) jointly issued a directive extending the maximum term for individual housing loans from 30 years to 40 years. Policies introduced over the same period also raised the upper limit for the ratio of total monthly debt payments to income from 55% to 60%. Previous rounds of policies repeatedly lowered down payment ratios for homebuyers and continuously increased housing provident fund loan limits. The goals of these policies are mostly clear, which is to further lower the financing threshold for residents buying homes and to enhance their capacity to purchase property with loans.
These days also coincide with the intensive release of 2026 interim financial reports. Data from the interim reports of the six major state-owned banks, namely the Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of China (BOC), China Construction Bank (CCB), Bank of Communications (BOCOM), and Postal Savings Bank of China (PSBC), reveal a different set of figures from another perspective, specifically from that of the balance of individual housing loans. As of the end of June, the individual mortgage balances of the six major banks stood at approximately RMB 23.97 trillion, a decrease of about RMB 508.6 billion from the end of 2025. This rate of decline may not appear particularly striking when viewed in isolation, but when compared with the total volume from last year, the speed at which individual mortgages are declining is remarkable. Throughout the entirety of 2025, the individual mortgage balances of the six major banks decreased by a total of approximately RMB 510 billion. Yet the first half of 2026 saw a drop equal to the volume of the entire year of 2025. While overall industry-wide data is not yet available, based on the figures from the six major banks that dominate the industry, it is essentially possible to judge that this trend is generally consistent.
The increasingly prominent situation of Chinese residents repaying mortgages in the first half of the year indicates that the household sector remains in a clear process of deleveraging. This trend began to emerge after 2022, when the growth rate of medium- and long-term household loans noticeably slowed down, shifting loan behavior from continuous expansion to contraction and repair. The household sector leverage ratio dropped from 62.3% in the first quarter of 2024 to 59.0% in the first quarter of 2026. Concurrently, among the groups of people newly purchasing homes, the proportion using bank loans has also continued to decline. Compared to the mindset of a decade ago to "borrow as much as possible", people buying homes today adopt a mindset of "borrow as little as possible".
On one side, policies are trying every possible means to lower loan thresholds and encourage residents to borrow money to buy homes. However, on the other side, residents are attempting more to pay down debt and borrow less. These two appear somewhat misaligned. Under the general trend of household sector deleveraging, policies have the potential to continue pushing up leverage, and a certain misalignment exists between the two, which may result in the policy effects being less than optimistic. Similar situations are found not only in the real estate sector, but in fact in the consumer sector as well. Since the beginning of 2026, total retail sales of consumer goods have generally exhibited a downward trend, even appearing in the rare circumstance of negative growth in individual months. Facing persistent consumer sluggishness, many policies have sought to stimulate consumption by enriching commodity supply, lowering consumer loan thresholds, and expanding consumer loan limits. In reality, the contraction of consumption indicates that the household sector is also deleveraging, where money is used to pay off debt or save rather than to consume. Under these circumstances, even granting residents more consumer loan quotas will find it difficult to fundamentally restore consumption growth.
When weak consumption and contracting loans occur at the same time, this reflects, to a certain extent, the household sector's proactive trend of deleveraging and debt repayment. This primarily stems from growing uncertainty about future income. Under such circumstances, most people choose to reduce their liabilities to cope with future uncertainties. A person who has no confidence in their future income will not buy a home simply because the loan term changes from 30 years to 40 years. The monthly payment might be slightly lower, but total interest is higher, and the debt burden is carried for longer.
At the policy level, the original intention behind measures to encourage greater leverage, like extending loan terms, easing debt-to-income requirements, lowering down payments, and increasing provident fund limits, is of course reasonable. These measures are intended to stabilize the real estate market and support consumption. However, if residents are generally moving towards deleveraging, policies that encourage more borrowing are likely to face limited response. They may have some effect, but the impact is likely to be modest and difficult to sustain. The issue is not that the policies are not favorable enough, but that their direction does not fully match the reality on the ground.
The main reason behind household deleveraging is the uncertainty the residents feel about the future. More specifically, it is closely tied to how people view their future income. For an ordinary household, decisions about buying a home, taking on a loan, or spending more money ultimately come down to a few basic questions: Will my income increase over the next few years? Could I lose my job? Will I have enough security when it comes to healthcare and retirement? Until people feel more confident about these issues, policies such as lowering down payments or extending loan terms are unlikely to have much impact. For now, the most important thing is to stabilize the expectations, which depends on two key factors.
The first is improving the public welfare system. This is one of the important reasons why people currently dare not consume, marry, or have children. ANBOUND repeatedly discussed this matter for many years, even before the outbreak of the COVID-19 pandemic, consistently emphasizing that the focus of public finance should be placed on livelihood issues, welfare, and social security. At that time, it also proposed a "comprehensive welfarism" concept from a theoretical perspective, the core of which was to use fiscal expenditure to improve public welfare and support people's livelihoods and consumption. The logic is simple: people are more willing to spend and borrow when they feel confident that they can afford medical care, have financial support in old age, and receive some protection if they lose their job. If the social security system is imperfect, residents can only desperately save money to guard against unwanted incidents. This has been an important starting point for household deleveraging in the years following the pandemic.
The second is stabilizing employment. The present period is a time of transition between old and new growth drivers, compounded by the supply-side depression of businesses, which leads to relatively prominent youth employment problems. In the first half of 2026, unemployment insurance fund revenue was RMB 107.72 billion and expenditures were RMB 106.68 billion, basically spending as much as was collected. From January to April, the fund revenue was RMB 70.53 billion, and expenditures were RMB 70.86 billion, already showing a current deficit of RMB 330 million. Stable employment is the foundation for stable income expectations, and people are more likely to increase their spending and investment when they feel confident about their future income. Unemployment pressure is real, and until employment problems are resolved, people will not feel very confident about consumption.
All in all, household deleveraging is not a short-term fluctuation, but rather a structural trend. The root cause lies in the current instability of many people's income expectations, coupled with the social security system still awaiting improvement. Under these circumstances, any policies encouraging residents to increase leverage, i.e., extending mortgage terms, lowering down payments, easing debt ratios, and the like, will not have much effect. It is not that the policies are incorrect, but that they are misaligned with actual conditions. What truly needs to be done may be to improve the public welfare system so that residents dare to spend money, and to stabilize employment so that residents have confidence in the future. Once these foundational tasks are in place, residents will naturally increase leverage and consume. If these areas are not addressed properly, even well-designed policy measures may have little effect. In a cycle of deleveraging, one cannot attempt to respond with the mindset of "increasing leverage".
Final analysis conclusion:
The continuous decline in bank personal mortgage balances and sluggish consumption in China point to a clear reality. Under such trends, policies lowering mortgage thresholds, extending mortgage terms, and expanding consumer loan quotas are unlikely to hold significant practical meaning or produce substantial effects. Ultimately, there is a need to restore confidence in future incomes, strengthen the social safety net, and create the conditions for households to feel comfortable taking on debt to buy homes and spending more on consumption.
