Kim Byung-hwan Proposes Equity-Type Housing Finance (Mortgage)
Aims to Address Household Debt and Support the Homeless
Detailed Roadmap to Be Announced by June
Kim Byung-hwan, Chairman of the Financial Services Commission (second from the right), attended the joint policy conference held by the Bank of Korea and the Korea Institute of Finance on the afternoon of the 3rd at the Bankers' Hall in Jung-gu, Seoul. In a special discussion moderated by Lee Hang-yong, President of the Korea Institute of Finance (left), Chairman Kim is having a conversation with Lee Chang-yong, Governor of the Bank of Korea (second from the left), and Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by the Financial Services Commission.
Kim Byung-hwan, Chairman of the Financial Services Commission, announced plans to introduce an 'equity-type housing finance (mortgage)' system to address the growing household debt problem and increase support for the homeless. A detailed roadmap is expected to be announced by June.
On the 3rd, at a special discussion during the 'Joint Policy Conference for Improving Real Estate Credit Concentration' held at the Bankers' Hall in Jung-gu, Seoul, Chairman Kim explained, "Until now, support for the homeless in buying homes has been provided by reducing interest rates, but we are considering whether this is desirable from the perspective of household debt and macroprudential management."
He added, "As an alternative, we are preparing measures for an equity-type mortgage. This is a way to use policy finance where the public sector jointly invests in the form of equity for the part of the funds lacking to buy a house, rather than a loan, so that no debt is incurred." He continued, "We are thinking about how to gradually establish this system and plan to announce a concrete roadmap by June."
The equity-type mortgage is a system where policy finance institutions such as the Korea Housing Finance Corporation (KHFC) participate as equity investors in the housing transaction process to alleviate the loan burden on homebuyers. The government's idea is to reduce the proportion of bank loans in housing transactions to lessen the household debt burden.
Chairman Kim stated, "The most common criticism we have heard while continuously tightening loan regulations is whether only those who can inherit from their parents can buy a house, which is a matter of accessibility and inequality. As housing market prices rise, the gap in assets and polarization worsen, inevitably leading to economic frustration, making it impossible to solve the household debt problem."
Due to these issues, the idea is to help individuals purchase homes jointly with policy finance institutions like KHFC by acquiring equity together. He explained, "For example, if the house price is 100, my money is 10, the bank loan is 40, and the remaining 50 is acquired by KHFC as equity. For the 50 that KHFC holds, the homeowner pays a usage fee slightly lower than interest, and later, when income is generated, they can buy out KHFC's equity." In the event that housing prices fall, KHFC bears the loss first.
He added, "Since there is an expectation to gain profits through leverage, we need to test how much demand there will be even if we change the structure like this, so we plan to conduct a pilot. We will test market demand and identify what needs to be improved, then consider whether to expand based on the response."
Lee Chang-yong, Governor of the Bank of Korea, and Lee Bok-hyun, Governor of the Financial Supervisory Service, who attended the special discussion, also agreed with Chairman Kim's views. Governor Lee said, "The Bank of Korea has also proposed a REITs system, which broadly can be seen as equity-type housing finance."
Governor Lee pointed out, "From a political perspective, it is right for policy finance to support low-income groups to buy homes at low interest rates, but from a macroprudential perspective, policy finance is contributing to raising house prices." He emphasized, "Even if banks provide policy finance loans to some low-income groups, they should reduce real estate loan supply to wealthier individuals and supply funds to other businesses to transform this structure."
Governor Lee also argued that the management of the household debt ratio relative to GDP must continue despite the current interest rate cut trend. He said, "The household debt ratio to GDP, which had not declined for 15 years, has decreased over the past three years, which I consider a significant change that must continue. This is the beginning of a long-term battle."
Governor Lee Bok-hyun also said, "After considering why there is such excessive concentration in real estate, it is because economic agents have used excessive leverage. Even if we do not forcibly reduce real estate portfolios, please actively consider investing in more innovative and complex-to-evaluate businesses."
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