"Cutting Household Loans?" Banks' Subsidy Sharply Increased... Policy Out of Sync [Real Estate AtoZ]

Details of the 2026 Budget by the Ministry of Land, Infrastructure and Transport
Interest Rate Subsidy from the Housing and Urban Fund Set at 1.972 Trillion Won

The Ministry of Land, Infrastructure and Transport has allocated nearly 2 trillion won for next year's secondary compensation support from the Housing and Urban Fund. Secondary compensation refers to the government supplementing the interest rate difference between policy loans, such as the Didimdol (home purchase) and Butimok (jeonse) loans, and general mortgage loans when commercial banks issue these policy loans. This mechanism effectively increases the volume of policy loans. While the government is introducing various regulations to slow the growth of household loans, some point out that this move could be contradictory.

According to the spending plan for the operation of the Housing and Urban Fund for next year, released by the Ministry of Land, Infrastructure and Transport on September 2, the budget for secondary compensation support is set at 1.972 trillion won. This is an increase of 132.2 billion won (7.2%) compared to this year's main budget, marking the highest level ever.

This budget is used to cover the interest rate gap that arises when banks provide policy loans. For example, if a borrower takes out a Didimdol loan for the maximum amount of 200 million won, and the market interest rate is 4.5% while the Didimdol loan rate is about 2.5%, there is a 2 percentage point difference. In monetary terms, this creates a gap of 4 million won, which is covered by the secondary compensation budget.

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The secondary compensation budget has been rising sharply in recent years. Until 2020, it was around 261.5 billion won, but it increased to 356.5 billion won the following year and 498.2 billion won in 2022, with annual increases of more than 100 billion won. Last year, it surpassed 1 trillion won for the first time, reaching 1.3951 trillion won. It appears the government intends to continue increasing it steadily into next year as well.

As the budget for direct government lending decreases and the secondary compensation support budget, which enables commercial banks to provide loans, increases, there are concerns that managing household loans may become more challenging. A simple calculation suggests that the increase in next year's secondary compensation support budget could enable more than 6 trillion won in additional loans. In contrast, the fund budget for home purchase and jeonse loans next year has been reduced by 27%. This year's main budget is 14.0572 trillion won, but for next year, it has been set at 10.3016 trillion won. Policy loans are considered one of the main factors behind the sharp increase in household loans.

However, since secondary compensation is provided with a time lag and the actual increase in loans will vary depending on how internal interest rate estimates are made, the entire budget may not necessarily be executed.

Kim Yoonduk, Minister of Land, Infrastructure and Transport. Photo by Yonhap News Agency

Meanwhile, the Ministry of Land, Infrastructure and Transport has reduced spending by about 6.7 trillion won through expenditure restructuring while preparing next year's budget. A senior official at the ministry stated, "In the past, we have adjusted the budget mid-year when execution performance was poor or when priorities were realigned, but we did not separately tally restructuring items. After the launch of the new administration, we closely analyzed the effectiveness of the existing budget and structured the budget in a way that reallocates resources secured through expenditure restructuring to urgent priority projects that the public can tangibly benefit from."

The ministry's budget for next year is set at 62.5 trillion won, an increase of about 7% compared to this year's main budget, marking the highest level ever.