Mortgage loans up $1.7 bn in March as young Koreans buy homes

[Photo by Yonhap]

Mortgage-backed loans in South Korea rose $1.7 billion in March as young borrowers turned to state-led, low-interest loan programs to buy their first homes.

According to the Bank of Korea on Monday, the outstanding balance of mortgage loans at local lenders stood at 800.8 trillion won ($605.3 billion) at the end of March, up 2.3 trillion won from 798.5 trillion won in February.

The balance stood at 798.8 trillion won in December and 798.8 trillion won in January before rising sharply in March.

Total household loans extended by local lenders, in the meantime, fell to 1,049.9 trillion won in March to 1,050.6 trillion won in February.

The BOK attributed to several factors for the rise in mortgage-backed loans, such as a rise in housing transactions and demand for special loans.

According to the BOK, loans for long-term rents, or jeonse in Korea, continued to fall, with a decrease of 2.3 trillion won in March. Data from the Financial Supervisory Service showed that the outstanding balance of state-run housing loans increased by 7.4 trillion won while collective and individual mortgage loans fell by 900 billion won and 1.9 trillion won respectively.

A citizen is at the counter for housing loan at the Korea Housing-Finance Corp. in Seoul. [Photo by Park Hyung-ki]

The popularity of state-run housing loans offered by the Korea Housing-Finance Corp. is also attributed to the rise in mortgages. The loan - introduced on Jan. 30 - lends to borrowers up to 500 million won with an interest rate as low as 3.25 percent, drawing huge attention from prospective borrowers.

The corporation said that the amount secured in the loan applications amounted to 25.6 trillion won, which accounted for 65 percent of the annual funds for the loan.

Industry insiders noted that young borrowers in their 20s and 30s are turning to the state-run loan scheme to buy their first homes.

According to the Korea Real Estate Board, apartment purchases nationwide made by those in their 20s and 30s accounted for 31.96 percent of the entire purchase as of February. It marks the first time they had more than 30 percent of the entire purchases.

“Those that were previously not eligible for the government’s loans due to the income cap became able to buy homes after the limit was lifted,” said a real estate agent in Cheonan, South Chungcheong province.

The popularity of the state-run loan scheme is growing among young borrowers because it has no income limit and is free from the debt savings ratio (DSR), the ratio of total required household debt payments to total annual income.

“Those in their 20s and 30s are paying more attention to the housing market,” said another real estate agent in Seoul. “They think now is the best time to buy homes as the government has eased regulations in the real estate market,” said Ko Jun-seok, an investment expert.