[Housing Pension Innovation]② Private Sector's 'Lifetime Type·Non-Recourse' on Trial... Risk Diversification Is Key

To Activate the Private Market
"Lifelong, Stable Pension Payments Needed Like Korea Housing Finance Corporation"
Risk Diversification Between Banks and Insurers... Securing Long-Term Funding Also Essential
Loan Regulations Such as DSR Are Also Obstacles to Market Growth

"For the private housing pension market to become active, there must be a variety of products. First, products like those offered by the Korea Housing Finance Corporation, which provide a stable lifelong pension while living in one's own home, need to be introduced."

Industry insiders agree that for the housing pension market to expand beyond the public sector to the private sector, products that consumers find attractive must be developed. In particular, it is pointed out that private sector products need to complement the public sector and serve a social role as a means of retirement preparation for the elderly by offering 'lifetime, non-recourse' housing pension products.

Even if house prices fall, pensions must be paid for life... Is risk diversification possible?

A lifetime, non-recourse product means, in short, that the customer receives money in the form of a lifelong pension, and even if the amount paid exceeds the collateral value, no liability is imposed. Currently, the Korea Housing Finance Corporation's product follows this model, but unlike the government-backed KHFC, private companies must diversify risks on their own, which is challenging. Additionally, they must pursue profits. This has been the reason why private financial companies have not actively entered the housing pension market.

An industry official said, "The housing pension structure involves selling the house upon the subscriber's death to recover the principal and interest of the loan. If house prices continue to rise, there is no problem, but if the real estate market is depressed at the time of liquidation, it may be difficult to recover funds, so this risk must be considered."

Since pensions must be paid over a long period, a stable funding method must also be found. For this reason, the financial sector views it as difficult for small- to medium-sized financial companies to develop individual products alone. Banks should first develop products and play a role as market catalysts by diversifying risks together with insurance.

In the UK, where the private housing pension market is active, the market grew rapidly as supply channels expanded with the entry of large financial institutions under a low-interest-rate environment. As the number of financial companies handling products increased, interest rates were lowered, and various products were developed, bringing positive effects.

There is also a suggestion that even if financial companies and subscribers do not share the risk of housing price declines for risk diversification, a structure where profits from price increases are shared should be considered. Kim Jae-chil, a senior researcher at the Korea Capital Market Institute, said, "If the benefits of future housing price increases can be shared between subscribers and financial institutions, it will serve as an incentive system from the supplier's perspective."

Used by elderly without income... Restrictions like DSR must be removed

Institutionally, it is pointed out that various regulations applied to mortgage loans should be relaxed considering the characteristics of housing pensions.

Housing pensions are used by elderly people without income to secure retirement income. However, currently, private housing pension products are still subject to loan regulations such as the Debt Service Ratio (DSR). DSR is an indicator showing how much of the borrower's income is used to repay all loans and plays an important role in determining loan limits. The lower the income, the smaller the loan amount available, and applying this directly to housing pensions makes it difficult to receive sufficient pension payments.

Currently, in the financial sector, Hana Bank is developing related products together with Hana Life Insurance and has been designated as an innovative financial service, allowing relief from DSR and Loan-to-Value (LTV) regulations. A representative from a commercial bank said, "Since housing pensions are reverse mortgage loan products, they are subject to the same regulations as general mortgage loans. Public housing pensions are recognized as exceptions, but for the private market to be activated, restrictions must be removed like in the public sector."