"Become the Owner of a 1 Billion Won Home with 100 Million Won"... Shared Equity Mortgage Offers Path to Homeownership with Less Debt [Financial Microscope]

Government to Introduce 'Shared Equity Mortgage' for People Without Homes
Buy a Home with Just 10% of the Price Using Government Support
More Sophisticated Policy Design Needed for Success

Is it now possible to become the owner of a 1 billion won home with just 100 million won of my own money? The government's proposed 'shared equity mortgage' policy is drawing increasing attention from the market.

View of apartment complexes in downtown Seoul from Namsan, Seoul. Photo by Yonhap News

The shared equity mortgage envisioned by the Financial Services Commission is a system in which policy financial institutions, such as the Korea Housing Finance Corporation (KHFC), participate as equity investors in an individual's home purchase, thereby easing the buyer's loan burden.

Simply put, it means sharing the ownership of the home you purchase with the government. For example, if the home price is 1 billion won, you could own a home with just 100 million won of your own money, 400 million won in bank loans, and the remaining 500 million won acquired as equity by KHFC. This allows individuals to buy a home with a relatively small amount of money.

The Financial Services Commission is pursuing the shared equity mortgage both to expand support for people without homes and to reduce the growing household debt. The amount supported by the government through the shared equity mortgage is classified as investment rather than a loan, so it does not add to the household debt, which has become a major social issue. Individuals only need to purchase a portion of the equity, enabling them to buy a home securely at a very affordable price. Meanwhile, the government can simultaneously pursue household debt management, support for people without homes, and housing price stability.

Byunghwan Kim, Chairman of the Financial Services Commission, explained at a forum held on the 3rd, "Until now, the government has supported people without homes by reducing interest rates when they buy a home, but we have considered whether this is desirable in terms of household debt and macroprudential management. As an alternative, we are preparing a shared equity mortgage, where the public sector invests together in the form of equity rather than loans to cover the shortfall in funds needed to buy a home, thus using policy finance in a way that does not create debt."

The government (KHFC) will not invest 50% equity without compensation. For the 50% equity held by KHFC, buyers will pay a usage fee similar to monthly rent, which will be lower than prevailing interest rates. If home prices are expected to rise, you can proactively purchase KHFC's equity share to realize capital gains. Conversely, if home prices are expected to fall, KHFC will bear the loss first, making the structure advantageous to buyers.

Because the benefits are so significant, the program is unlikely to be offered to everyone. The initial pilot project is expected to target qualified groups such as people without homes, newlyweds, and low-income youth. Since people without homes are the main target of the policy, there will likely be a cap on the price of homes that can be purchased. The Financial Services Commission plans to announce a policy roadmap in June, but before that, it is holding working-level meetings with related agencies and plans to gather opinions through roundtable discussions with various stakeholders.

Some point out that more sophisticated planning is needed for the policy to be successfully established. The government has introduced similar systems in the past, but the results so far have not been significant. For example, the shared mortgage announced in 2013 included both a profit-sharing model and a model that shared both profits and losses upon sale. Although it initially attracted market interest, as the housing market began to recover, it was largely ignored after 2016 and became virtually ineffective.

The equity accumulation housing program announced in 2020 allowed individuals to pay only a portion of the home price at the time of initial purchase and gradually accumulate the remaining equity over time to eventually gain 100% ownership. Although the Special Act on Public Housing was amended in 2021 and the first supply was scheduled for 2023, the project has been delayed for various reasons.

Yoonkyung Heo, a research fellow at the Korea Institute of Construction Industry, stated, "I agree with the introduction of alternative housing finance not only from a macroeconomic perspective but also in terms of structural changes in the housing market. However, the product structure must be reviewed from multiple angles, including the experiences of past policies and measures to ensure market adoption, so that both the government and consumers can benefit from the system."

Heo added, "The profit-sharing model leads to conflicting interests depending on economic conditions, and as seen in the case of the shared mortgage, demand can fluctuate greatly. When the economy is strong, demand tends to concentrate on direct sales, while in downturns, the likelihood of sharing equity with the public sector increases. Therefore, it is important to design risk management measures for the product."