‘Bogeumjari Loan’ Shrinks to One-Ninth Compared to 3 Years Ago... Useless Due to 600 Million KRW Cap

Loan Transactions Shrink to 1/9 Compared to Peak Three Years Ago
‘600 Million Won’ Threshold Causes Sharp Drop in Bogeumjari Loan Execution Performance

[Image source=Yonhap News]

[Asia Economy Reporters Chae-eun Koo and Min-young Kim] The performance of the ‘Bogeumjari Loan,’ a policy mortgage product for low-income households, has sharply declined, rendering it almost useless. Over the past three years, housing prices have surged rapidly, making it difficult to find properties priced below the loan ceiling of 600 million KRW, and the rise in interest rates has reduced housing demand.

The average apartment price in Seoul is 1.2 billion KRW... ‘Bogeumjari Loan’ remains an unattainable dream

According to data from the Korea Housing Finance Corporation obtained by Rep. Young-duk Yoon of the National Assembly’s Political Affairs Committee as of August, the number of Bogeumjari Loan loans stood at only 3,762 cases (669.3 billion KRW). Both the number of loans and the amount shrank by more than 60% compared to a year ago.

The Bogeumjari Loan peaked in November 2019 with 27,716 cases (4.2 trillion KRW). Until December 2020, monthly loan cases ranged from 10,000 to 20,000, and loan amounts were in the 2 to 3 trillion KRW range, reflecting its popularity. However, as housing prices soared, the eligible pool shrank, and performance began to decline. As of last month, the number of loans had shrunk to one-ninth of what it was three years ago in November 2019. The combination of skyrocketing housing prices, a sluggish real estate market, and rising interest rates is believed to have reduced both the number and amount of loans.

The Bogeumjari Loan is a product that offers fixed-rate loans up to 360 million KRW for purchasing homes priced at 600 million KRW or less, targeting households with a combined annual income of 70 million KRW or less (85 million KRW for newlyweds). It has been regarded as a useful housing ladder for low-income real demand households in their 30s and 40s who find it difficult to win housing lotteries and lack cash liquidity. The loan allows stable monthly principal and interest repayments for up to 40 years at low interest rates. To use the Bogeumjari Loan, the appraised value of the collateral home must be 600 million KRW or less as of the loan approval date. This price criterion was set in January 2017.

However, in the Seoul metropolitan area, including Seoul, the housing price criterion no longer reflects reality, causing a sharp decline in eligible applicants. According to KB Real Estate, the average apartment sale price in Seoul as of August was 1.27879 billion KRW, far exceeding the Bogeumjari Loan’s housing price limit. When the Bogeumjari Loan was introduced in January 2017, the average apartment sale price in Seoul was 597.69 million KRW. In the metropolitan area, the average apartment sale price nearly doubled from 406.15 million KRW to 851.7 million KRW during the same period. While housing prices have soared, the loan’s housing price eligibility criteria have failed to reflect market prices at all, which is why criticism has arisen.

Professor Tae-yoon Sung of Yonsei University’s Department of Economics said, “At the time of the system’s introduction, the price criteria were likely based on the median housing price at that time, but as market conditions change and new loan balances decrease, it is desirable to raise the criteria to reflect the realistic standards of housing-vulnerable groups.” Seo Jin-hyung, co-representative of the Fair Housing Forum and professor at Gyeongin Women’s University’s MD Product Planning and Business Department, pointed out, “Policy mortgage products like the Bogeumjari Loan have fixed housing price criteria for loan execution. It is necessary to link the eligibility criteria to market prices to ensure effectiveness.”

[Image source=Yonhap News]

The proportion of Seoul apartments priced below 600 million KRW has halved

The scarcity of homes priced below 600 million KRW is also confirmed by household statistics. According to data reflecting KB market prices submitted by the Korea Housing Finance Corporation to Rep. Yoon’s office, the proportion of Seoul households living in homes priced below 600 million KRW was 64.6% in January 2017 but plummeted to 9.7% as of August. In the metropolitan area, the proportion halved from 85.1% to 44.1% during the same period. Nationwide, it decreased from 92.0% to 67.4%.

The clear downward trend in housing prices and the resulting decline in buying demand are major reasons for the waning popularity of the Bogeumjari Loan. The rise in interest rates has dampened buying demand, and real demand buyers, fearing further price drops, have shifted from buying to a wait-and-see stance. According to the Korea Real Estate Board, as of September 30, Seoul’s apartment sales-to-supply index recorded 78.5, marking 21 consecutive weeks of decline since the first week of May (91.1). This is the lowest level in three years and three months since the third week of June 2019 (77.5). A sales-to-supply index below the baseline of 100 means there are more sellers than buyers in the market.

Rep. Young-duk Yoon said, “It is problematic that the Bogeumjari Loan, designed to help low-income people own homes, is not functioning properly. It is necessary to monitor housing market trends and operate the program flexibly to contribute to housing stability for low-income households through policy improvements.”

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