[Debt Again] ① Special BoGeumjari '13 Trillion Won Sale'... Household Loan Growth Accelerates

25 Trillion Won Released Special Bogeumjari, 53% Used for Sales
5 Major Banks' Household Loan Growth Accelerates Further in June
Monetary Policy and Real Estate Policy Misalignment 'Criticized'

"In the early stages of the Special Bogeumjari Loan implementation, many refinancing loans involved switching from variable to fixed interest rates. However, recently, this policy has led to new loans. The increase in household loans in the financial sector since April was influenced by the decline in market interest rates, but the impact of the Special Bogeumjari Loan is significant." (May 25, Bank of Korea Monetary Policy Committee)

Since the end of January this year, the Korea Housing Finance Corporation has released about 25 trillion KRW through the Special Bogeumjari Loan over the past five months. This accounts for 63% of the annual supply target amount (39.6 trillion KRW). The Special Bogeumjari Loan is a combined product that includes the Bogeumjari Loan for home purchases, the Anshim Conversion Loan for refinancing at lower interest rates, and the Qualified Loan offering long-term fixed interest rates.

More Applications for Special Bogeumjari Loans for Home Purchases

What is noteworthy is that the amount used for purchases exceeds that for refinancing. A financial authority official said on the 20th, "Initially, there was high demand for refinancing, but recently, applications for new home purchases have increased," adding, "This can be seen as a revival of housing purchase demand."

As of the end of last month, the 'Distribution of Valid Applications by Purpose for Special Bogeumjari Loan Funds' reveals the details. Among the total 24.8678 trillion KRW released into the market, 'New Home Purchase' accounted for the highest proportion at 53.6% (13.3361 trillion KRW). For reference, the Special Bogeumjari Loan allows loans up to 500 million KRW for homes priced at 900 million KRW or less, regardless of the Debt Service Ratio (DSR) regulation.

'Refinancing loans' followed at 38.3% (9.5268 trillion KRW), and 'Return of Lease Deposit' accounted for 8.1% (2.0049 trillion KRW). The interest rates for the Special Bogeumjari Loan have remained steady since launch. The general rate ranges from 4.15% (10 years) to 4.45% (50 years) annually, while the preferential rate ranges from 4.05% (10 years) to 4.35% (50 years) annually.

A banking sector official said, "At the end of January, market mortgage loan rates at commercial banks were well above 5%, so the Special Bogeumjari Loan had strong rate competitiveness and was popular," adding, "Nowadays, bank rates are in the 4% range, and internet banks have rates dropping to the 3% range, so demand for bank mortgage loan products is generally recovering."

Due to Mortgage Loans... Household Loan Growth Accelerates

The pace of household loan growth is accelerating. Household loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) began to rebound from last month. After continuously declining since December 2021, they have risen for the first time in 1 year and 5 months. The increase in May was 174.6 billion KRW (from 677.4691 trillion KRW at the end of April to 677.6122 trillion KRW at the end of May). However, in just the first half of this month, loans increased by 277.5 billion KRW (from 677.6122 trillion KRW at the end of May to 677.8897 trillion KRW on June 15). Most of this was mortgage loans.

The outstanding balance of housing-related loans at the five major banks increased by 174.6 billion KRW (from 509.6762 trillion KRW to 509.8508 trillion KRW). Jeonse deposit loans decreased by 185.6 billion KRW due to the Jeonse fraud crisis. However, the increase was driven by rising demand for individual mortgage loans and group loans related to home purchases.

The proportion of new mortgage loans is also increasing at internet banks. KakaoBank, which had absorbed refinancing demand with mortgage loans at 3% interest rates, has seen an increase in new loan proportions since last month. A KakaoBank official said, "The proportion of new loans for home purchases had continuously decreased to 41% by the end of April," adding, "But it rose to 48% by the end of May." KakaoBank mortgage loan rates range from 3.8% to 6.7% for variable rates and 3.9% to 6.5% for fixed rates (as of the 19th).

[Image source=Yonhap News]

KB Financial Group Management Research Institute analyzed, "In May, nationwide housing sale prices fell by 0.58% compared to the previous month, reducing the year-to-date decline by more than half. Regionally, the decline slowed in Gyeonggi, Incheon, and Sejong, and by size, the decline in small and medium-sized homes eased," adding, "Since April, buying demand has shown a gradual recovery centered on the metropolitan area."

There are also considerable concerns about the shift from decline to increase in household loans. At last month's Bank of Korea Monetary Policy Committee meeting, it was pointed out that "While global household debt deleveraging is underway, deleveraging appears to have hardly occurred in South Korea and Japan. The increase in household loans due to policies aimed at a soft landing of the housing market raises concerns about conflicts between policies," and "Easing real estate-related regulations may help alleviate financial instability but could delay resolving financial imbalances (household debt growth), potentially harming medium- to long-term macroeconomic and financial stability."