[1mmGeumyungTalk] "The Surge in Household Loans Is Not Due to 50-Year Mortgage Loans"

Special Mortgage Loan - 'Must Buy Now' Psychology - Expectation of Interest Rate Drop
Household Loans Increasing Recently Due to Three Causes
Financial Sector "Effect of 50-Year Maturity Mortgage Age Limit Uncertain"
Authorities "Preemptive Measures to Prevent Surge in Household Loans"

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.

"The cause of the increase in household loans being attributed to 50-year maturity mortgage loans? You can understand the reason just by looking at the recovery of the subscription market. If it were a period like last year when house prices were falling and interest rates were rising, even if they had launched 100-year maturity products instead of 50-year ones, they wouldn't have sold."
(A representative from a commercial bank)

When financial authorities pointed to the 50-year maturity mortgage loans introduced by commercial banks last month as the cause of the increase in household debt, the financial sector criticized, saying "they are blaming the banks again." Ultra-long-term mortgage loans have a long repayment period, which reduces the monthly repayment amount. Because of this, it becomes a way to avoid the Debt Service Ratio (DSR) regulation. The downside is that the total interest amount to be repaid is much higher than that of a 30-year maturity mortgage loan. However, once the period for paying early repayment fees has passed, borrowers can switch to other loan products or repay by selling their homes without bearing the burden. The amount of 50-year maturity mortgage loans handled by the five major banks (Kookmin, Shinhan, Hana, Woori, Nonghyup) exceeded 1.2 trillion KRW in just one month.

The trend is a real estate market recovery

Financial authorities are considering measures such as limiting 50-year maturity mortgage loans, like the policy financial product Special Bogeumjari Loan (50-year maturity), to only those aged 34 or younger. The rationale for regulation includes whether borrowers can earn enough income to repay principal and interest over 50 years until maturity, whether it is merely a loophole to avoid DSR regulations, and if selling the house before maturity is intended for speculative gains. A financial authority official explained, "It is a preemptive measure to prevent the acceleration of household debt growth."

The banking sector doubts how effective the 'age restriction' will be in curbing overall household loans, as the cause of the increase lies elsewhere. Even as mortgage loans from commercial banks declined earlier this year, household loans reversed to an increasing trend from April. The main cause was the Special Bogeumjari Loan introduced by the government to facilitate a soft landing of the real estate market. From February to July, about 18.2 trillion KRW worth of Special Bogeumjari Loans for home purchases were released into the market. This is why the authorities mentioned "adjusting the supply speed" by referring to "interest rate hikes on Special Bogeumjari Loans" at the household debt status review meeting on the 10th.

On the 14th, in a real estate-dense shopping area in Songpa-gu, Seoul, where the decline in real estate prices and the transaction freeze phenomenon continue, apartment listings with market prices are posted. Photo by Kang Jin-hyung aymsdream@

The spread of the bottoming theory of house prices in the real estate market, with sentiments like "now is the cheapest" and "now is the time to buy," is also fueling the increase in household debt. This can be seen from the recovery in the subscription market. According to Real Estate 114, the average competition rate for Seoul subscriptions from January to the end of July was 67.6 to 1, more than six times higher than last year's average competition rate of 10.9 to 1. A representative from a commercial bank said, "The big trend is that the real estate market is recovering, and loans are increasing following this trend. The 50-year maturity mortgage loan is just one of the loan options, so blaming it as the main culprit is excessive."

Predictions that interest rates will fall in the future are also encouraging borrowing. Currently, mortgage loan interest rates at commercial banks are in the 4-5% range. Another commercial bank representative analyzed, "If consumers consider an appropriate interest rate to be around 3%, the current rate is about 1-2 percentage points higher. However, many people believe that even if they pay a bit more interest this year, rates will go down later, and with financial authorities easing regulations, more people think buying a house now is the right decision, leading to increased borrowing."

Some demand switching to 50-year maturity mortgage loans to reduce principal and interest payments

The banking sector says that with the introduction of ultra-long-term mortgage loans that did not exist before, there is likely demand from existing borrowers switching to 50-year maturity mortgage loans to reduce their monthly principal and interest payments. A financial sector official said, "The 50-year maturity mortgage loan was first introduced by the government as the Special Bogeumjari Loan, and banks created similar products after seeing this. The 50-year mortgage loan includes not only demand from those borrowing to buy homes but also from those refinancing."

Meanwhile, after reports emerged that financial authorities are considering restricting 50-year maturity mortgage loans to those aged 34 or younger, issues of reverse discrimination have surfaced on internet communities. The main points include "Many people in their late 30s and early 40s are preparing to buy homes, but the government is removing the housing ladder," and "Even if people take out 50-year maturity mortgage loans, many refinance or sell their homes midway, so imposing age restrictions on a specific product is unfair."

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