Suspension of General Application Due to Household Debt Increase
Only Preferential Type Remains... October Interest Rate Frozen
The financial authorities have eliminated the general type of the Special Bogeumjari Loan as a measure to stabilize household loans. Starting from the 27th, just before the Chuseok holiday, the Korea Housing Finance Corporation (hereinafter referred to as KHFC) stopped accepting applications for the general type of the Special Bogeumjari Loan, which targets houses priced over 600 million KRW or couples with a combined annual income exceeding 100 million KRW. Additionally, temporary two-homeowners who purchase a new home on the condition of disposing of their existing home within three years are no longer eligible for the Special Bogeumjari Loan.
As of the end of August, the Special Bogeumjari Loan was highly popular, with 89.4% (35.4 trillion KRW) of the supply target amount (39.6 trillion KRW) being disbursed. However, the funds used for new home purchases accounted for the largest portion and were recently cited as a cause of the increase in household debt. Over the past seven months, 61.1% (21.6395 trillion KRW) of the total amount was allocated to home purchase loans. Refinancing existing loans accounted for 31.8% (11.2725 trillion KRW), followed by 7.1% (2.4987 trillion KRW) used for returning tenants' deposit guarantees.
The Financial Services Commission decided to concentrate the remaining 4.2 trillion KRW of the Special Bogeumjari Loan supply target after August exclusively on the preferential type product for those in difficult financial circumstances. Therefore, from the 27th, only the preferential type product, which applies to couples with a combined annual income of 100 million KRW or less and houses priced at 600 million KRW or less, is available for the Special Bogeumjari Loan. A Financial Services Commission official explained, "Considering KHFC's limited support capacity and the increasing household debt situation, it is inevitable to focus support on the groups that truly need it."
The Korea Housing Finance Corporation froze the interest rates for the Special Bogeumjari Loan in October. The preferential type interest rates for houses priced at 600 million KRW or less and couples with a combined annual income of 100 million KRW or less remain at 4.25% per annum (10 years) to 4.55% per annum (50 years). Low-income youth, newlywed households, and socially disadvantaged groups (such as persons with disabilities and single-parent families) receive an additional preferential interest rate (up to 0.8 percentage points), resulting in the lowest rates ranging from 3.45% per annum (10 years) to 3.75% per annum (50 years).
Meanwhile, household loans are increasing rapidly. According to the "Financial Market Trends in August 2023" released by the Bank of Korea on the 13th, the outstanding balance of bank household loans at the end of last month rose by 6.9 trillion KRW from the previous month to 1,075 trillion KRW. This marks the fifth consecutive month of increase since April, setting a new record for the highest outstanding balance.
The increase in household loans in August is mainly due to mortgage loans. While mortgage loans increased by 7 trillion KRW, other loans decreased by 100 billion KRW. The rise in housing prices and transaction volumes has sustained demand from homebuyers. Long-term mortgage loans with 50-year terms and policy mortgage loans are also cited as factors contributing to the increase in household loans.
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