"Even with 1% Interest Rate, Buying a House"…Changed Atmosphere for Special Loan [Jibtok]

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"I didn't buy a house with the newborn special loan at an annual interest rate of 1-3%."

It has been revealed that most recipients of the newborn special loan used it for refinancing (debt replacement) rather than purchasing a home. This is a completely different atmosphere from the Special Bogeumjari Loan, which was launched last year with a fixed interest rate of 4% and stirred the housing market by focusing on new home purchases. Experts say, "Since the end of last year, housing prices have been declining again, so no matter how low the special loan interest rates are, people are reluctant to buy houses."

According to the Ministry of Land, Infrastructure and Transport on the 7th, the newborn special loan, which started on the 29th of last month, received a total of 2.4765 trillion KRW (9,631 cases) within a week until the 4th. Among these, the 'Didimdol Home Purchase Loan' accounted for 2.0945 trillion KRW (7,588 cases), and the 'Buteimmok Jeonse Deposit Loan' was 382 billion KRW (2,043 cases).

Of the Didimdol Home Purchase Loan amount, 1.6061 trillion KRW (6,069 cases) was used for refinancing. This accounted for 76.7% of the total loan amount and 80% of the cases, making up the majority. The remaining 488.4 billion KRW (1,519 cases) was used for new home purchases, accounting for 23.3% of the amount and 20% of the cases.

Although these are the same special loans launched by the government, the situation is quite different from the Special Bogeumjari Loan, which had high demand for new homes. The effective application amount linked to actual loans for the Special Bogeumjari Loan from January last year for one year reached 43.4 trillion KRW (a total of 181,971 cases). In terms of purpose, new home purchases accounted for the largest share at 65.5% (28.4137 trillion KRW) of the total application amount. Refinancing was 27.8% (12.0647 trillion KRW), and returning rental deposits was 2.9023 trillion KRW (6.7%).

At that time, as the Special Bogeumjari Loan was heavily used for new home purchases, household debt surged rapidly. In the third quarter of the same year, financial authorities and the Bank of Korea pointed out that "the Special Bogeumjari Loan is a cause of household debt increase." The real estate industry widely evaluated that "the Special Bogeumjari Loan led to rising house prices by being invested in home purchases." According to the Korea Real Estate Board, the comprehensive housing price change rate (month-over-month) rose from -1.86% in January last year to 0.42% in September of the same year. This price increase was driven by the Special Bogeumjari Loan.

Special loans refer to loans provided by the government to low-income earners with much lower interest rates than commercial banks and without limit regulations such as the Debt Service Ratio (DSR). The newborn special loan was offered by the Housing and Urban Guarantee Corporation (HUG), while the Special Bogeumjari Loan was created by the Korea Housing Finance Corporation (HF). The former has a strong birth encouragement policy character, while the latter aims for a soft landing of the real estate market. The supply scale of the newborn special loan (26.6 trillion KRW) is smaller than that of the Special Bogeumjari Loan (43.4 trillion KRW).

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The reason newborn special loan recipients are not moving to buy homes is analyzed to be due to the small eligible target group, the obligation to reside in the home, and the overlapping impact of the market downturn. Ham Young-jin, head of the Zigbang Big Data Lab, said, "The real estate market has entered a readjustment period since the fourth quarter of last year, so everyone is just watching the interest rate reduction period," adding, "When house prices fall, people become psychologically restrained, so refinancing existing high-interest loans is much more attractive than buying a new home."

Ham said, "The Special Bogeumjari Loan had no residency obligation and anyone meeting income or housing price conditions could get a loan regardless of age. However, the newborn special loan requires residency, so fundamentally, buying a house with a jeonse (long-term deposit lease) is not possible, and the target is much more limited to those who have given birth within the last 1-2 years."

There is also a view that special loans in the current real estate market should be seen as a shield to prevent further price declines rather than fueling house prices. Park Won-gap, senior real estate expert at KB Kookmin Bank, said, "Koreans rarely buy houses when prices are at the bottom," and "The newborn special loan will act as a shield to prevent the real estate market from falling, focusing on mid-to-low priced properties under 900 million KRW."

He added, "In January, the number of apartment sales contracts in Seoul is expected to be about 2,000 cases. Although it is too early to predict, there is a possibility that demand for buying homes using the newborn special loan will increase in the future."

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