More banks in Shanghai are joining the Bank of China in tightening the policy on a 30 percent discount on first home mortgages to curb risks.

They include China Construction Bank, China Everbright and Fujian-based Industrial Bank, sources said.

"The days of easy access to the 30 percent discount on mortgages have expired," said a source who declined to be named. "It's definite that it will be much more difficult to enjoy preferential rates in the future."

Previously, almost all first home mortgage applicants could enjoy the 30 percent rate discount and only needed to make a 20 percent down payment on first homes. But now only applicants with good credit history and who make a 40 percent down payment can avail themselves of the 30 percent discount, sources said.

But some lenders such as the Bank of Communications and Industrial and the Commercial Bank of China are still keeping their current mortgage policy of 30 percent discount and 20 percent down payment. But credit officers at the sub-branch level said more tightening moves are likely after the Spring Festival.

The Shanghai Bureau of the China Banking Regulatory Commission conducted a citywide test on individual mortgages and found that the bad loan ratio on these mortgages would rise to 1.28 percent, 2.6 times more than usual, if housing prices fall 10 percent in the city, the regulator said yesterday.

"The pressure test on individual mortgages is far from optimistic," the banking regulator said.

The ratio would rise to 1.51 percent if home prices fall 20 percent and further jump to 2.08 percent if home prices tumble 30 percent in the city.

"A tighter trend is inevitable," said a credit officer from a big five bank. "It's only about the timing."

Last year, new individual mortgages topped 107.1 billion yuan (US$15.7 billion) in Shanghai, up 98.2 billion yuan from a year earlier. People from outside the city, including expatriates, accounted for 35 percent of the new individual mortgages in 2009.

In Shanghai, prices of existing properties rose to 14,700 yuan per square meter on average in December, an annual surge of 41 percent while prices for new homes rose to an average of 20,187 yuan per square meter in December, up 65 percent from a year earlier.

The outstanding value of property loans grew 28.1 percent to 760.4 billion yuan by December 31.