Household deleveraging continues to accelerate, with credit data weakening further as latest financial figures show July household loans fell by 460.3 billion yuan, a year-on-year reduction of 29 billion yuan. Within this, medium and long-term loans, dominated by mortgages, decreased by 120.2 billion yuan, expanding the year-on-year decline by 10.2 billion yuan, highlighting mounting pressure from negative credit growth. On a cumulative basis, household loans across the first seven months shrank by 827.1 billion yuan, a year-on-year increase in reduction of 1.5 trillion yuan.

This is not merely a seasonal fluctuation in the property market. Behind the shrinking data lie the twin forces of early mortgage repayments and weak new-home lending. Multiple research reports indicate that households' willingness to take on leverage has cooled significantly, with zero-loan home purchases emerging as a defining feature of the ongoing balance sheet repair process for the household sector. Looking ahead to the second half of the year, supported by effective and forceful policies, the property market is expected to continue its trend of bottoming out and gradual recovery.

Household credit remains under sustained pressure

Data reveals that in July, household short-term loans and medium-to-long-term loans decreased by 340 billion yuan and 120.2 billion yuan respectively, with year-on-year changes of minus 42.7 billion yuan and plus 10.2 billion yuan respectively. The widening year-on-year decline in household medium and long-term loans stands in notable contrast to the recent rebound in property market transactions. While the market has shown some recovery, July typically marks the traditional off-season, with activity cooling from the mid-year push, yet year-on-year transaction volumes remain relatively robust. According to China Index Academy data, new home sales in 100 key cities fell 17% month-on-month in July but rose 4% year-on-year. In the secondary market, 20 key cities saw 125,000 existing home transactions, down 6% month-on-month but up 9.3% year-on-year, with the growth rate narrowing by 3.1 percentage points from the previous month—activity eased sequentially but stayed stronger than the same period last year.

Market analysis attributes the divergence between recovering transactions and contracting household credit to two core factors: first, households' diminished appetite for leverage; second, the divergence between sales volume and prices, where transaction areas recover while home prices continue to fall, leaving insufficient confidence for market stabilization. The off-season sales and divergent price performance make it difficult for medium and long-term household loans to expand significantly. Wen Bin, chief economist at China Minsheng Bank, notes that July's property market entered its slow season, with new home transactions undergoing seasonal adjustment, while cumulative second-hand home transactions hit new highs. However, the foundation for stabilization remains fragile, compounded by substitution from low-interest provident fund loans, buyers voluntarily increasing down payments, replacement transactions often conducted in full cash or with low leverage, and persistent early repayment intentions—all constraining mortgage issuance and keeping medium and long-term household loans under pressure.

Wang Yifeng, chief financial industry analyst at Everbright Securities, adds that employment and income expectations have yet to see substantive improvement, while falling home prices erode household balance sheets, dampening both consumption capacity and willingness, resulting in significant downward pressure on overall readings.

Leverage appetite hits rock bottom

Amid the deep adjustment of the property market, despite mortgage rates remaining at historically low levels, households' willingness to take on leverage has plunged to an all-time low. According to the central bank's quarterly data, the weighted average interest rate on newly issued commercial personal housing loans has remained stable at 3.06% for three consecutive quarters, yet these low rates have failed to stimulate household credit demand. The Q2 2026 Financial Institution Loan Direction Statistics Report shows that at the end of the second quarter, personal housing loan balances stood at 36.29 trillion yuan, down 3.8% year-on-year, with a reduction of 716.3 billion yuan in the first half, bringing their share of total credit balances down to 12.8%. The year-on-year growth rate of personal housing loan balances has now been negative for 13 consecutive quarters.

Behind this data contraction lie the persistent phenomena of early mortgage repayments and sluggish new-home lending. A research report from Cric notes that from a loan structure perspective, the first half of 2026 exhibited an extremely pronounced "borrowing less, repaying more" characteristic: medium and long-term household loans increased by only approximately 221.2 billion yuan, a massive year-on-year reduction of over 900 billion yuan, marking the lowest increment in recent years. Notably, in April alone, household medium and long-term loans saw a net repayment of 340.8 billion yuan—meaning repayments exceeded new issuance that month—reflecting record-high early repayment volumes. Driven by the inverted yield between mortgage rates and wealth management or deposit returns, coupled with falling home prices, households have come to view early mortgage repayment as the "optimal asset allocation," sparking a "wave of concentrated repayments."

Household home purchase patterns have also undergone fundamental transformation. The National Institution for Finance & Development's Q2 macro leverage report points out that zero-loan home purchases have become a key feature of household balance sheet repair. This stems mainly from the fact that after deep adjustments in second-hand home prices, total prices for some small-unit properties in core cities have fallen within the reach of first-time buyers, prompting residents to meet housing needs through purchasing smaller, lower-priced existing homes. Additionally, as banks have repeatedly cut deposit rates, the widening mortgage-deposit spread incentivizes residents to use savings for full cash purchases, thereby reducing mortgage interest burdens.

Cric's report argues that in the short term, there is a critical need to guard against the solidification and spread of the negative feedback loop of "falling prices—early repayment—weak consumption—falling prices." Once this cycle gains momentum, it would simultaneously exert triple pressure on the property market, household consumption, and bank retail credit, leaving domestic demand recovery facing sustained structural resistance.

Policy support provides a floor

It is worth noting that while existing mortgage holders continue to deleverage, most first- and second-tier cities saw a slight increase in financial leverage used for home purchases in the first half, reflecting that property policies have stimulated incremental purchase demand to a certain extent. Another report from the National Institution for Finance & Development references the loan-to-value (LTV) ratio, an indicator significantly positively correlated with personal housing loan default rates. A lower LTV indicates a higher proportion of self-funded purchases, implying less risk for banks and financial institutions. The report notes that despite deleveraging among existing loan holders, the loan values for new second-hand home purchases in most sample cities rose slightly compared to end-2025, with leverage levels for incremental purchases increasing modestly, suggesting existing financial policies are playing a role in boosting incremental demand.

Since July, a series of consumption-boosting and property-stabilizing policies have been rolled out intensively, which is expected to provide some support for household credit improvement. The Political Bureau meeting in July proposed "stabilizing the property market," with policy focus remaining on supporting bottoming-out rather than tightening, and incorporating real estate into the framework of "practically building a secure safety barrier." Entering August, Beijing formally implemented new property market optimization measures, continuing to focus on the demand side by lowering purchase restrictions and increasing provident fund support to further release home purchase demand. According to China Index Academy, market feedback from the first weekend after policy implementation showed increased foot traffic at some new home projects and existing home brokerage viewings, with both first-time and upgrade buyers showing heightened consultation interest. However, the impact from demand release to contract signing and final online registration requires time, and whether transactions can sustain improvement in the coming weeks is key to observing the policy's effectiveness.

Wen Bin anticipates this will, to some extent, boost market sentiment and promote housing demand release, while driving recovery expectations across the national market. In the short term, transaction activity in both new and existing homes is likely to improve, providing some support to household credit. China Index Academy believes that if transactions continue to improve and price declines narrow further, the market's bottoming process could become more clearly defined.

Looking ahead to the second half of the year, the National Institution for Finance & Development report concludes that with effective and forceful policy support, the property market is expected to continue its trend of bottoming out and gradual recovery. Personal housing loan rates will likely remain at low levels; however, constrained by interest rate spread limits, commercial banks have limited motivation to proactively cut mortgage rates. Whether mortgage rates can be further reduced primarily depends on adjustments to the 5-year-plus Loan Prime Rate. Household balance sheet repair will continue, with some families potentially still resorting to early repayments to reduce future debt burdens, meaning negative growth in personal housing loan balances will persist in the short term. As the proportion of improvement housing demand involving "selling old to buy new" rises, and with more full-cash or high-down-payment purchasers, urban residents' financial leverage for home purchases may decline somewhat.