Loan Demanders Flocking to Policy Mortgages... Concerns Over Aftermath of Suspension (Comprehensive)

Bogeumjari Loan, Low Interest Rates and High Limits... LTV Regulation Also at 70%
Concerns About New Applications Suspension in 2016
Qualified Loans Also Gaining Popularity Thanks to Low Thresholds

[Image source=Yonhap News]

[Asia Economy Kim Jin-ho] Sunwoo Hyun (36, pseudonym), who works at a large corporation, has lost motivation to work due to soaring housing prices. Despite working hard for the past few years, the rising housing prices show no signs of slowing down, and the continuous home purchases by acquaintances have further discouraged him. After much deliberation, Sunwoo decided to visit sites on the outskirts of Seoul to purchase an apartment. As a newcomer to society, he does not have much savings yet, but he believes it will be possible if he receives as much policy mortgage as possible.

The policy financial product, the Bogeumjari Loan, is gaining attention as the "last bastion" for home ownership, attracting a large number of demanders. While financial authorities have tightened household loans mainly through commercial banks, the lower interest rates and higher limits compared to banks are expected to increase demand among young actual buyers. However, since the government’s determination to curb the household debt growth rate is stronger than ever, there are concerns that if a balloon effect of concentrated loan demand becomes evident, the handling of the loan may be suspended as in the past.

According to the financial sector on the 29th, the supply amount of Bogeumjari Loans until August this year was about 17 trillion won. This is a similar growth rate to last year (about 26.6 trillion won), which recorded the highest ever. Considering the autumn moving season starting in September, if the supply increases by about 2 trillion won per month on average, the annual supply amount this year is estimated to be about 25 trillion won.

The Bogeumjari Loan, handled by the Korea Housing Finance Corporation, is a fixed-rate mortgage loan provided for homes priced at 600 million won or less, with an annual income limit of 70 million won (85 million won for newlyweds). The maximum term is up to 40 years, and the maximum limit is about 360 million won.

The Bogeumjari Loan is popular as a means for young people in their 20s and 30s to own a home. Since it targets actual buyers, the loan-to-value ratio (LTV) regulation is more lenient compared to other mortgage loans, making it suitable for young people with lower incomes. While bank mortgage loans apply an LTV of 40% (based on speculative overheated districts), the Bogeumjari Loan has an LTV of up to 70%. The interest rate is also competitive at 2.9?3.2% per annum, compared to the 3% late to 4% range of commercial bank mortgage loans.

Demand for Bogeumjari Loans is expected to increase further in the second half of this year. This is because, with the onset of the interest rate hike period, preference for fixed interest rates is rising, and some commercial banks are refusing to handle mortgage loans altogether.

However, some voices express concerns about the balloon effect spreading even to policy financial products. During the rapid rise in real estate prices in 2016, the handling of new Bogeumjari Loans was temporarily suspended, and there is growing anxiety in real estate communities that such an event could recur if funding demand concentrates.

However, since financial authorities have repeatedly stated that policy financial products will be relatively free from regulations, the possibility of suspension spreading seems slim. Since the main users are youth and low-income groups, regulating these products could face criticism for squeezing actual buyers. A Korea Housing Finance Corporation official said, "We will comprehensively review the allocation of policy mortgage resources and support measures to achieve a harmonious goal between supporting low-income and vulnerable groups and managing household debt."

Meanwhile, demand is also concentrating on another policy financial product, the 'Qualified Loan.' Although the interest rate is slightly higher than the Bogeumjari Loan, its popularity stems from less stringent conditions and higher limits. The Qualified Loan can be obtained by non-homeowners or one-homeowners who promise to dispose of their home when purchasing a home priced at 900 million won or less. The limit is up to 500 million won.

In particular, loan applicants who find it difficult to use the Bogeumjari Loan tend to prefer the Qualified Loan, even if the interest rate is somewhat higher. This is because there are no income conditions and the limit is about 140 million won higher. However, unlike the Bogeumjari Loan, the Qualified Loan has quarterly limits set by each bank, so users need to be cautious.

This content was produced with the assistance of AI translation services.