The Shanghai Banking Association may issue nonbinding guidelines on multiple mortgages to help its members cope with new state rules designed to discourage speculation in the real estate market, the group said yesterday.

Most banks in Shanghai are taking a wait-and-see attitude on how to implement new requirements issued on September 27, but some have already worked out their own new mortgage strategies.

The rule changes, by the People's Bank of China and the China Banking Regulatory Commission, require mortgage holders who apply for another home loan to come up with a down payment of at least 40 percent and pay a 10-percent premium on their interest rate.

For people seeking a mortgage on a third or fourth property, the down payment requirement and interest rate should be even higher, with specific parameters to be determined by commercial banks.

The regulators didn't clarify how husbands and wives would be treated or whether the rules apply to a second loan taken out by someone who previously paid off a first mortgage.

Banks are in a delicate position. If they define the rules too loosely, they risk punishment from regulators. And if they set the rules too strictly, they risk losing business.

The Bank of Communications became the first of the country's top-five state-owned banks to unveil its new practices.

The Shanghai-based bank said it will consider only the loan applicant's credit history - and not the history of spouses or other family members. Applicants who have already repaid their mortgages and plan to take out another won't be hit with the higher rates, a source told Shanghai Daily yesterday. People who apply for a third or fourth mortgage have two options. They can produce a down payment of at least 55 percent or pay a 15 percent premium on interest rates, the source said.

The bank's interpretation of the new rules is similar to the stance taken by China Everbright Bank and Huaxia Bank. China Construction Bank, on the other hand, will consider the loan experience of an entire family, Chairman Guo Shuqing said.

(Shanghai Daily October 20, 2007)