Bogeumjari loan and commercial bank loan tightening interest balloon effect
“Rather than reducing the loan amount, we should adjust the interest rate, etc.”
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While the government created confusion in the process of reducing the limit on Stepping Stone loans, a policy loan for home purchases, to control the increase in household loans and rising housing prices, it was revealed that the amount of Stepping Stone loans made this year until last month increased 2.7 times compared to last year.
The amount of applications for special stepping stone loans for newborns also exceeded 10 trillion won this month.
In addition to managing the size of policy loans, it is pointed out that the government, which must also consider the policy goal of housing stability, such as ‘supporting the low-income class to buy a house’, should adjust interest rates, etc., rather than reducing the amount of loans.
According to data submitted by the Ministry of Land, Infrastructure and Transport on the 28th to Representative Lee Yeon-hee of the Democratic Party of Korea, a member of the National Assembly’s Transportation Committee, 42.847 trillion won in stepping stone and support loans, which are policy loans financed by the Housing and Urban Fund, have been executed as of last month this year.
This is an increase of 14.3979 trillion won (51.5%) compared to the same period last year (27.7868 trillion won).
In particular, the growth in stepping stone loans is steep. The loan amount amounted to KRW 22.3202 trillion during the same period, a 2.7-fold increase from January to September last year (KRW 8.1196 trillion).
Support loans for jeonse funds amounted to 19.7645 trillion won during the same period, which is an explosive increase considering that it is at a similar level compared to the same period last year (19.6672 trillion won).
This is why the government raised the stepping stone loan interest rate by up to 0.4 percentage points to 2.35-3.95% per annum in August of this year, and then went so far as to reduce the loan limit. This is because the ‘balloon effect’ caused by Bogeumjari loan and commercial bank loan tightening, lower loan interest rates than commercial banks, and relaxed income requirements all combined to drive demand for stepping stone loans.
The general stepping stone loan is a representative policy finance product for the common people that lends up to 250 million won at an interest rate of 2 to 3% per annum when a homeless person with an annual income of 60 million won or less buys a house worth 500 million won or less. Because there are restrictions on income requirements and home value, it is mainly used by home buyers in Gyeonggi, Incheon, and other regions rather than Seoul.
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Last year, policy loans were concentrated on special mortgage loans managed by the Financial Services Commission, but as they have since decreased, demand has focused more on stepping stone loans.
As interest rates rose and house prices began to decline from the end of 2022, the government temporarily provided a special housing loan for one year from January last year that lends up to 500 million won when purchasing a house worth 900 million won or less, regardless of income. The amount executed was 41.8336 trillion won.
As the increase in household debt increased due to the operation of special mortgage loans that were not subject to the Debt Service Ratio (DSR), the government suspended general loans for housing prices of 600 million to 900 million won in September last year, and extended loans to those with housing prices below 600 million won. We decided to operate only preferential loans.
Starting this year, the annual income standard (70 million won for couples, 85 million won for newlyweds) and housing price standard (600 million won) have been set to the level of existing nest loans.
As interest rates did not differ significantly compared to commercial banks, the amount of loans decreased, and the amount of new Bogeumjari loans executed between January and August of this year amounted to 3.3 trillion won, a significant decrease from 42.6 trillion won per year last year.
In contrast to the reduction in home loans, the requirements for stepping stone loans under the Ministry of Land, Infrastructure and Transport have continued to be relaxed and their scale has increased.
The income requirements for stepping stone loans for newlyweds have been expanded from a combined annual income of 70 million won to 85 million won since October last year. The combined income requirement for couples for the special stepping stone loan for newborns, launched in January this year, is 130 million won, and the Ministry of Land, Infrastructure and Transport plans to raise the income standard to 200 million won this year.
It was even announced that the number of households giving birth between next year and 2027 would be raised to 250 million won.
The newborn special loan provides a loan of up to 500 million won to non-homeowners who gave birth or adopted a child within two years of the loan application date when purchasing a house worth 900 million won or less. The lowest interest rate is 1.6% per year.
Although commercial bank home mortgage loan interest rates are rising, the interest rate on stepping stone loans is maintained at 2-3% per year, and even products with low interest rates of as low as 1% are being introduced, which means that demand has increased.
In the case of the newborn special loan, the application amount exceeded 10 trillion won in just 9 months after its launch on January 29th of this year. As of the 21st, a total of 39,456 loan applications worth 10.1779 trillion won were received. Stepping stone (purchase) applications amount to KRW 7.732 trillion, and support (lease) amounts to KRW 2.4459 trillion.
In this situation, some experts say that we should consider other measures, such as raising interest rates, rather than reducing the stepping stone loan limit.
Song In-ho, director of the Economic Information Center at the Korea Development Institute, said, “Stepping Stone loans are long-term, fixed-interest loans, so it is better to target variable interest rates, deferred loans, and lump sum repayment loans at maturity rather than Stepping Stone loans.” He added, “For policy consistency, loans to the common people must be addressed. “I wonder if it is,” he said.
