[Photo by Yonhap]
As concerns about rising household debt mount, South Korean financial authorities are considering reducing the supply of policy mortgages, including the “Bogeumjari Loan” designed for first-time homebuyers, by nearly 60 percent next year compared to this year.
According to multiple financial sources on Tuesday, the Financial Services Commission (FSC) recently discussed with the Korea Housing-Finance Corporation (KHFC) a plan to keep the supply of policy mortgages at around 21 trillion won ($16.09 billion) in 2024. The KHFC expects the supply of policy mortgages, including the Special Bogeumjari Loan, to hit 50 trillion won by the end of 2023, meaning that the supply of next year’s policy mortgages is expected to be reduced by about 60 percent compared to this year. Policy mortgage products include the Bogeumjari Loan, the Special Bogeumjari Loan, and the Safe Conversion Loan.
The latest discussion appears to have been prompted by criticism that policy financial products are fueling household debt insolvency by encouraging borrowing. The Special Bogeumjari Loan is a policy financial product that allows individuals to borrow up to 500 million won for a home valued at 900 million won or less, regardless of income. It is particularly popular due to its relatively low interest rate in the 4 percent per year range.
Mortgage loans, which account for most of the household debt, saw a slight decrease in the first two months of 2023, but went on to reverse the trend and record a monthly increase of 5 to 6 trillion won from the second half of the year after a rise in March. This marked the turning point for the increase in home mortgage loans, with the launch of the Special Bogeumjari Loan in January 2023 playing a significant role in this reversal. Total household loans in the banking sector increased from 1,058 trillion won at the end of 2022 to 1,086 trillion won at the end of October 2023, with home mortgage loans leading the overall increase by rising by 44 trillion won from 796 trillion won to 840 trillion won during the same period.
The supply of the Special Bogeumjari Loan surged to 7.4 trillion won in March from 1.5 trillion won in February, and the cumulative supply amount for this year to October was 41.7 trillion won. In response, the KHFC took measures to curb borrowing by raising the interest rates on such special mortgage loans and suspending the handling of some loans, but the effect has been minimal, prompting the financial authorities to put forward a plan to significantly reduce the supply of policy mortgages.
By Kim Hee-rae and Yoon Yeon-hae
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