HF’s long-term mortgage loan demand falls due to lower bank rates

[Photo by Yonhap]

The long-term policy mortgage loan provided by the Korea Housing Finance Corp. (HF) is losing ground, with the application amount dropping to one-twelfth of 2023’s figure in the first six months of this year.

According to data submitted by HF to the National Assembly on Tuesday, the application amount for HF’s Bogeumjari Loans from the beginning of 2024 until the end of June was 2.36 trillion won ($1.7 billion), about one-twelfth of the valid application amount of 28.2 trillion won for the mortgage loan in the first half of the previous year.

HF’s mortgage loan is a policy finance product that allows borrowing for home purchases, lump-sum lease deposit return, or repayment of existing mortgage loans. It is quite unusual for HF‘s mortgage loan to be unpopular amid a significant increase in housing purchase demand that has led to an overall rise in mortgage loans at commercial banks and other housing-related policy finance products.

The reasons for the sharp decline in demand include stricter requirements and less attractive interest rates.

The Special Bogeumjari Loan, which was temporarily offered for one year in 2023, was renamed and restructured as the Bogeumjari Loan with stricter requirements at the end of January 2024. The Special Bogeumjari Loan was available for homes priced at 900 million won or less, but the new Bogeumjari Loan is only available for homes priced at 600 million won or less. A new income requirement requiring a combined annual income of 70 million won or less for couples was also added.

The Bogeumjari Loan’s less attractive interest rates compared to those of commercial banks are another reason., Bogeumjari Loan rates ranged from 4.05 percent (10 years) to 4.35 percent (50 years) for online application-based loans in June 2024 but ranged from 3.95 percent to 4.25 percent a month later.

Meanwhile, the interest rates for five-year mortgages from the top five commercial banks ranged from a minimum of 3.05 percent to a maximum of 5.79 percent as of Monday. Although the upper limit is somewhat high, the lower limit is relatively lower than that of the HF loan.

There is also speculation that applications for Bogeumjari Loan could fall further due to falling financial bond rates, which serve as the basis for interest rates, despite banks raising their additional interest rates following government guidelines on household loan management. With mortgage refinancing becoming common, it is also estimated that more existing HF loan borrowers will switch to commercial bank mortgages.

“Demand for new Bogeumjari Loans has dropped significantly due to high interest rates, while more customers are now looking to refinance their existing Bogeumjari Loans with other loans,” an official from a commercial bank said.