Conditions Changed, Doubled... Anshim Conversion Loan, 3.7 Trillion Won in 15 Days

Relaxed Conditions Lead to 3.7 Trillion Won Applications in 15 Days
Twice as Fast as 3.9 Trillion Won in 33 Days Before Relaxation
Concerns Remain Over Still Falling Short of 25 Trillion Won Limit

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Interest in the Safe Conversion Loan, which allows refinancing of market mortgage loans at a fixed interest rate as low as 3.7% per annum, is growing again. This is attributed to the more realistic conditions regarding housing prices and combined spousal income.

According to the Korea Housing Finance Corporation on the 29th, since the Safe Conversion Loan resumed on the 7th, a total of 3.7242 trillion KRW (approximately 23,522 cases) was received over 15 business days until the 25th. Compared to the first application period from September 15 to the 31st of last month, which lasted 33 business days and received about 3.9897 trillion KRW (39,026 cases), applications have poured in at about twice the speed.

This is interpreted as a result of more realistic application conditions. Since the 7th, the financial authorities have relaxed the application requirements and increased the loan limits for the second phase of applications. The housing price limit was raised from 400 million KRW to 600 million KRW or less, and the combined spousal income limit was increased from 70 million KRW to 100 million KRW or less. The loan limit was also increased from 250 million KRW to 360 million KRW. The interest rates remain the same as before, at 3.8?4.0% per annum (3.7?3.9% for low-income youth), and with these somewhat eased conditions, interest has surged.

Earlier, during last month’s National Assembly audit, there were many criticisms that the conditions were excessively unrealistic, and accepting and revising these conditions has had an immediate effect. In fact, the average application amount per case increased by 54.9%, from 102.3 million KRW in the first phase to 158.32 million KRW in the second phase. However, there are also criticisms that the performance is still sluggish compared to the initially expected scale of 25 trillion KRW. Since the application deadline for the preferential Safe Conversion Loan with eased conditions is until the end of the year, it remains uncertain whether the remaining approximately 18 trillion KRW over about a month will be exhausted.

Nevertheless, as the base interest rate has more than doubled over the past six months and the COFIX (Cost of Funds Index), which serves as the benchmark rate for variable-rate mortgage loans, has also surged, it is analyzed that this is a time when anxious borrowers’ interest is focused. The COFIX for October, based on new transaction amounts, announced by the Korea Federation of Banks on the 15th, recorded 3.98%, up 0.58 percentage points from the previous month. This is the highest level since COFIX disclosure began in 2010 and also the largest increase ever.

Expectations that the base interest rate will continue to rise remain, so interest in the Safe Conversion Loan is expected to grow further. Regardless of base rate hikes until the end of the year, interest rates on products such as the Bogeumjari Loan, which has kept rates frozen in the mid-4% range, are also expected to rise, so there is a judgment that policy financial products offering lower rates should be utilized now. Plans are being discussed to introduce a ‘Special Bogeumjari Loan’ next year, combining the Safe Conversion Loan with other policy financial products, but it may come with higher interest rates than currently.

Professor Taeyoon Sung of Yonsei University’s Department of Economics explained, “It is certainly necessary to actively supply policy financial products during the current period of rising interest rates. If excessively lenient conditions are set in advance, moral hazard problems may arise, but if support for low-credit borrowers stops, it poses a risk to overall financial stability. Therefore, a flexible response that continuously monitors market conditions and provides an appropriate level is needed.”