South Korea considering longer mortgage terms
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An official at KB Kookmin Bank told The Korea Herald on condition of anonymity of concerns that such long-term mortgages might not be "right for the Korean market."
"Once they buy a house, they own it for a lifetime, while very few purchase real estate solely for investment purposes. South Koreans, however, tend to view apartment purchases as investments."
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With South Korea’s financial authorities gearing up to launch the nation’s first 40-year mortgage this year, as of Monday there was talk of longer-term options ahead -- as well as concern about whether longer-term mortgages are appropriate for the local housing market.
The policymaking Financial Services Commission said Sunday that the state-backed 40-year option would be introduced for younger people and newly married borrowers as early as July. The FSC is jointly planning the mortgage with the banking sector and the Korea Housing Finance Corporation, a state-run housing financial institution better known here as LH.
The 40-year mortgage is likely to be offered to a wider range of borrowers and could serve as a steppingstone for longer-term options, depending on its success, industry watchers said.
The launch of the 40-year option will mark the longest-term deal ever offered here, surpassing the existing 30-year state-backed mortgages offered by LH.
The 40-year mortgage’s lending terms will fundamentally follow those of LH’s 30-year option, which is available to households with annual income of less than 70 million won ($62,078) and homes priced below 600 million won. It allows borrowers to receive up to 300 million won depending on their circumstances, with an annual interest rate of some 2.5 percent. The rate is not fixed.
While the 40-year mortgage has yet to be officially introduced, talks of the eventual launch of a 50-year option have been floating around the political arena.
Lee Nak-yon, one of the leading presidential candidates for 2022 and former chairman of the ruling Democratic Party, first announced the party’s plan to pursue the launch of the 50-year option after discussing related matters with the government.
Lee’s declaration met with a divided response from industry insiders.
FSC Chairman Eun Sung-soo last week refrained from giving a clear answer but hinted at his support, saying the apparent intention behind the longer terms was to take housing-related pressure off young people. “If the situation changes, we could launch a study on the option,” he added.
An official at KB Kookmin Bank told The Korea Herald on condition of anonymity of concerns that such long-term mortgages might not be “right for the Korean market.”
“The US has long-term mortgages because they view housing properties differently,” the official explained.
“Once they buy a house, they own it for a lifetime, while very few purchase real estate solely for investment purposes. …South Koreans, however, tend to view apartment purchases as investments.”
The official said that delaying repayment for assets purchased for investment purposes is not in sync with the current circumstances surrounding the Korean housing market.
Yonsei University economics professor Sung Tae-yoon said that while it is “not a bad idea” to provide various mortgage options for borrowers, the government needs to tread more cautiously when designing state-backed loans, considering the borrower’s repayment capabilities and their age.
Long-term mortgages are common in other countries, especially the US, but remains rare in Korea. Even in the US, the most common term for a fixed-rate mortgage is 30 years.
By Jung Min-kyung (mkjung@heraldcorp.com)
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