Special BoGeumjari Loan for Home Purchase Reaches 18 Trillion Won in Half a Year... Household Loan Increase 'Emergency'

Main Causes of Increase in Special Bogeumjari Loan
Financial Authorities Announce Additional Interest Rate Hike
New Home Purchase Accounts for 58.6% of Total Usage

The Bank of Korea raised the base interest rate by 0.5 percentage points, and the real estate transaction market is expected to experience a prolonged winter. On the 13th, a red light was on at a traffic signal near an apartment in downtown Seoul.

As household loans, centered on mortgage loans, continue to increase, financial authorities are preparing to introduce additional interest rate hikes on policy loan products. The target is the Special BoGeumJaRi Loan. "Since the interest rate for the Special BoGeumJaRi Loan rose by 0.25 percentage points in August, we will prepare measures to adjust the supply pace, including additional hikes, considering supply trends and the funding conditions of mortgage-backed securities (MBS)." (Household debt status review meeting on the 10th)

The Special BoGeumJaRi Loan is a product launched at the end of January this year that integrates the 'Safe Conversion Loan,' which allows switching from existing variable or mixed-rate mortgage loans to fixed-rate mortgage loans, and the 'Qualified Loan,' a long-term fixed-rate loan for home purchases. The interest rate for the Special BoGeumJaRi Loan had remained unchanged until it increased by 0.25 percentage points starting from the 11th of this month.

The proportion of new home purchases and purchase prices increase monthly

For the general type of Special BoGeumJaRi Loan, the interest rate rose from the previous 4.15%?4.45% per annum to 4.40%?4.70% per annum. As of the 14th, the fixed interest rates at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) range from 3.82% to 5.58%. At the lower end, the Special BoGeumJaRi Loan is somewhat higher. This indicates an intention to slow down the pace at which funds are being released by raising rates further.

An official from a commercial bank said, "The Special BoGeumJaRi Loan has the advantage of not being subject to the Debt Service Ratio (DSR) regulation, so loans have been issued at a faster pace. The increase in mortgage loans this year is due to the easing of real estate regulation zones, raising the loan-to-value (LTV) ratio limits, and introducing real estate soft-landing measures like the Special BoGeumJaRi Loan."

According to the Korea Housing Finance Corporation, the effective application amount for the Special BoGeumJaRi Loan as of the end of July was 31.1285 trillion KRW. Among this, the largest portion was allocated to new home purchases. Over the past six months, 18.2322 trillion KRW, accounting for 58.6% of the total amount, was used for home purchase loans. As the housing market gradually recovers, the proportion and amount of new home purchases are increasing monthly (53.6%, 13.3361 trillion KRW at the end of May → 56.4%, 15.9191 trillion KRW at the end of June).

Calls to extend Special BoGeumJaRi Loan to prevent real estate hard landing

The Korea Research Institute for Human Settlements explained in its report "Analysis of Housing Transaction Patterns Since the Implementation of the Special BoGeumJaRi Loan" that "From February to May this year, apartment sales transactions over 300 million KRW increased by 16.6 trillion KRW compared to the same period last year," and "The Special BoGeumJaRi Loan increased alone even when banks' general mortgage loans decreased, influencing transaction activation and housing price rises."

Since 78% of the total budget (39.6 trillion KRW) for the Special BoGeumJaRi Loan has been exhausted so far, it is expected to lose momentum in the second half of this year. However, the emergence of arguments from government-affiliated research institutes advocating for the extension of the Special BoGeumJaRi Loan system to ensure a soft landing in the real estate market could be a variable. "If consumers become confident that loan interest rates will be maintained at around 4% per annum, both demand and transactions will quickly normalize. We should consider extending the temporary Special BoGeumJaRi Loan operation until the third quarter of next year." (Korea Research Institute for Human Settlements, on the 13th)

Meanwhile, financial authorities are also considering imposing age restrictions on 50-year ultra-long-term mortgage loans, which are cited as one of the causes of the increase in mortgage loans, apart from the Special BoGeumJaRi Loan.

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