'Loan Cliff' Spreads to Policy Mortgages... Interest Rates Hit Highest in 3 Years

Qualified Loans and Bogeumjari Loan Practically Halted This Year
Bogeumjari Loan Interest Rate Hits Highest in 3 Years... Qualified and Didimdol Also Rise Consecutively

[Asia Economy Reporter Kim Jin-ho] Ko Eun-ji (34, pseudonym), who dreamed of buying her own 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 could be obtained at 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. Ko said, "It's not just the interest rate, but whether I can even get the loan that worries me more," adding, "I am so anxious that I am considering asking the homeowner to postpone the final payment date, and I can't even sleep."

The aftershocks of the financial authorities tightening household loans are spreading beyond commercial banks to policy mortgages. This is because the handling of policy mortgages such as Bogeumjari Loans and Qualified Loans has effectively been suspended this year. In particular, with interest rates reaching their highest levels in over three years, there are evaluations that it has become even more difficult for ordinary citizens to secure their own homes.

According to the financial sector on the 20th, the loan quota for this month at Bank A, the only commercial bank still selling Qualified Loans, was exhausted in just one day. The monthly loan quota for Qualified Loans at this bank is around 10 to 12 billion KRW. A bank official hinted, "You can say it was closed within less than a minute of the quota being allocated," and added, "Although the December quota for Qualified Loans is not large, there are many customers inquiring, so it's practically like a 'lottery.'"

Most commercial banks, except Bank A, have already temporarily suspended handling Qualified Loans until the end of the year. This means that the handling of Qualified Loans for this year is effectively over. Although there is about 4 trillion KRW of annual loan quota remaining, there are no banks handling it, leading to criticism that it is like 'finding a needle in a desert.'

The situation is not much different for the Bogeumjari Loan. As of the 12th, applications for this year's loans have effectively ended. If one applied for the Bogeumjari Loan on that day, the execution can only be done after January 10 of next year.

Concerns are also being raised that the interest burden on ordinary citizens flocking to policy mortgages will increase day by day. 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 the market interest rate rising rapidly this year, it has surged by 1 percentage point in just one year.

The situation is similar for Qualified Loans and Didimdol Loans. At the beginning of this year, the average interest rate for Qualified 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. Didimdol Loans have also recently decided to raise interest rates by up to 0.35 percentage points.

The problem is that concerns are growing that this loan shortage phenomenon will become even more pronounced in policy mortgages next year. There are criticisms that excessive loan restrictions are threatening even the real demand of ordinary citizens.

In fact, 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. The Bank of Korea is expected to raise the base interest rate twice by early next year, which could further increase the interest burden. There is also analysis that if the base interest rate is raised twice, the policy mortgage interest rate surpassing 4% is only a matter of time.

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