South Korea plans longer mortgage maturities
The policy-making Financial Services Commission said on Sunday that the state-backed 40-year option would be introduced for young people and newly married borrowers as early as July. The FSC is jointly planning the mortgage with the banking industry and the Korea Housing Finance Corporation, a public housing finance institution better known here as LH.
The 40-year mortgage will likely be offered to a wider range of borrowers and could serve as a springboard for longer-term options, depending on its success, industry watchers have said.
The launch of the 40-year option will mark the longest-term deal ever offered here, going beyond existing 30-year state-guaranteed mortgages offered by LH.
The loan terms of the 40-year mortgage will fundamentally follow those of LH’s 30-year option, which is available to households with annual incomes below 70 million won ($ 62,078) and homes with the price is less than 600 million won. It allows borrowers to receive up to 300 million won depending on their circumstances, with an annual interest rate of around 2.5%. The rate is not fixed.
While the 40-year mortgage has yet to be officially introduced, discussions about whether to launch a 50-year option have floated in the political arena.
Lee Nak-yon, a top presidential candidate for 2022 and former chairman of the ruling Democratic Party, first announced the party’s plan to continue launching the 50-year option after discussing issues related with the government.
Lee’s statement met with a divided response from industry insiders.
Last week, FSC Chairman Eun Sung-soo refrained from giving a clear answer, but hinted at his support, saying the apparent intention behind the longer-term mandates was to ease the pressure related to housing on young people. “If the situation changes, we could launch a study on the option,” he added.
A KB Kookmin Bank official told the Korea Herald, on condition of anonymity, that he was concerned that such long-term mortgages were “not right for the Korean market.”
“The United States has long-term mortgages because they see real estate properties differently,” the official explained.
“Once they buy a house, they own it for life, while very few buy real estate for investment purposes only. … South Koreans, however, tend to view apartment purchases as investments.
The official said the postponement of repayment of assets purchased for investment purposes is not in line with the current circumstances surrounding the Korean housing market.
Yonsei University economics professor Sung Tae-yoon said that while it was “not a bad idea” to offer various mortgage options to borrowers, the government should be more careful. when designing government guaranteed loans, taking into account the borrower’s repayment capacity and age.
Long-term mortgages are common in other countries, especially the United States, but remain rare in Korea. Even in the United States, the most common term for a fixed rate mortgage is 30 years.
By Jung Min-kyung ([email protected])