Qualified Loans and Policy Mortgages Also Face 'Loan Cliff'... The Collapsed Dream of Owning a Home (Comprehensive)

Bogeumjari Loan Interest Rate Hits Highest in 3 Years... Eligibility and Didimdol Also Rising
Bank of Korea Base Rate Hike Expected... Increased Burden on Low-Income Households Likely
Experts "Policy Finance Should Be Steadily Supplied" Concern Over Side Effects

[Asia Economy Reporters Jin-ho Kim, Hyo-jin Kim] Park Eun-ji (38, pseudonym), who dreamed of buying her first home by the end of this year, has recently been struggling with issues related to applying for the Bogeumjari Loan. This is because interest rates have risen significantly over the past year, and the application conditions have become much stricter. The Bogeumjari Loan interest rate, which was in the mid-2% range a year ago, has recently reached the mid-3% range, marking the highest level in over three years. The loan application deadline has also been drastically tightened from 20 days prior to 50 days prior. Park said, "The interest rate is one thing, but my bigger concern now is whether I can even get the loan," adding, "I’m so worried that I might have to ask the homeowner to postpone the payment date, and I can’t even sleep."

As the financial authorities tighten household loans, effectively halting policy mortgage lending this year, the level of 'housing instability' felt by low-income households is expected to rise further. In particular, with the interest rates of major policy mortgage products recently hitting their highest levels in over three years, the 'last bastion' for low-income households to buy a home has become more difficult to access. This loan shortage is expected to continue next year, and there are concerns that excessive loan restrictions will ultimately cause greater harm to low-income households.

◆ Relying solely on policy mortgages... increased interest burden = According to financial authorities on the 18th, there are concerns that the interest burden on low-income households flocking to policy mortgages to avoid tightened bank loans will continue to increase.

According to the Korea Housing Finance Corporation, the loan interest rate for the U-Bogeumjari Loan (based on a 30-year term) this month is 3.35% per annum, the highest since September 2018 (3.45% per annum). The Bogeumjari Loan interest rate has been on a steady rise since hitting a low of 2.35% per annum in October last year. With market interest rates rising rapidly this year, the rate has surged by 1 percentage point in just one year.

The situation is similar for the Jeokgyeok Loan and Didimdol Loan. At the beginning of this year, the average interest rate for Jeokgyeok Loans at commercial banks was in the 2% range, but it has soared to the mid-3% range in the second half of the year. The Didimdol Loan has also recently decided to raise interest rates by up to 0.35 percentage points.

The problem lies in the interest burden on low-income households. With policy mortgage usage itself becoming a 'needle in a haystack' situation and interest rates rising rapidly, the burden has only increased. For example, a borrower who took out a 300 million KRW Bogeumjari Loan in October last year had to pay 1.16 million KRW monthly in principal and interest, but a borrower taking out the loan this month must pay 1.32 million KRW.

Especially since the Bank of Korea is expected to raise the base interest rate twice by early next year, the interest burden is likely to increase further. Some analyses suggest that if the base rate is raised twice, policy mortgage interest rates surpassing 4% is only a matter of time.

There are also forecasts that it will be even harder to obtain policy mortgages next year. The Financial Services Commission is reportedly considering reducing the policy mortgage supply target for next year from the original 37 trillion KRW to below 33 trillion KRW. There are concerns that policy mortgage lending could be halted earlier than this year.

◆ Policy mortgage lending doors closed this year = Among commercial banks, Bank A, the only bank still offering Jeokgyeok Loans, exhausted its loan limit for this month in just one day. The bank’s monthly Jeokgyeok Loan limit is about 11 billion KRW. A bank official said, "The limit was fully allocated in less than a minute," adding, "Although the December Jeokgyeok Loan limit is not large, many customers inquire, so it’s practically like a lottery."

Most commercial banks have temporarily suspended Jeokgyeok Loan issuance until the end of the year. This means that the issuance of Jeokgyeok Loans for this year is effectively over. Although about 4 trillion KRW of annual loan limits remain, no banks are issuing loans, making it akin to 'finding a needle in a desert.'

The situation is not much different for the Bogeumjari Loan. As of December 12, loan applications for this year have effectively ended. If one applied for the Bogeumjari Loan on that day, the loan would only be executed on January 7 next year. This is due to the rapid surge in demand for policy mortgages caused by consecutive household loan tightening measures.

◆ Disheartened non-homeowners: "Low-income funds have run out" = Experts express concern that with policy mortgages effectively blocked, the last breakthrough for genuine homebuyers, especially low-income households, has completely disappeared. Professor Kim Dae-jong of the Department of Business Administration at Sejong University said, "Policy financing is the last bastion for low-income households," adding, "The exhaustion of policy financing means that funds for low-income households have run out."

Professor Kim also analyzed that the current government’s excessive loan restrictions, aimed at compensating for failures in real estate policy, have led to this outcome. The government is using every means to show that housing prices have stabilized, but while not leaving real estate to the market, it seems to neglect financial issues like interest rates by leaving them to the market, which is problematic.

He emphasized, "This is a harsh reality for low-income households," and stressed, "At least policy financing should be steadily supplied."

Voices continue to be raised that this phenomenon fundamentally stems from the side effects of the current 'total volume regulation' policy. Professor Oh Jung-geun of the Department of Economics at Konkuk University said, "It is necessary to consider shifting from total loan volume regulation to soundness management methods, as seen in advanced financial countries," adding, "The total volume regulation inevitably distorts the price function of money, that is, the interest rate setting structure."

Professor Sung Tae-yoon of the Department of Economics at Yonsei University advised, "To resolve the monopoly power of financial companies, it is necessary to strengthen competition," and "Loans should be smoothly provided according to income and creditworthiness."

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