Despite entering an era of benchmark interest rates in the 2% range, there are criticisms that the government's decision to raise policy rates for non-homeowning low-income households has led to a misalignment in financial policy. This is contrary to recent actions by financial authorities urging banks to lower interest rates.
According to the Ministry of Land, Infrastructure and Transport on the 27th, the interest rates for the housing & urban fund's purchasing fund (Dilimdol) and jeonse fund (Beotimok) loans will be adjusted starting from loan applications made after the 24th of next month. The Dilimdol loans are policy loans aimed at non-homeowners with a combined annual income of up to 85 million won, and with this adjustment, the interest rates for Dilimdol loans in the metropolitan area will increase by 0.2 percentage points from the previous 2.65%–3.95% to 2.85%–4.15%.
The interest rate for the Beotimok loan, which provides jeonse funds to non-homeowners with a combined annual income of up to 50 million won, will also be raised by 0.2 percentage points to 2.5%–3.5% in the metropolitan area starting from the same period. This increase will not be applied retroactively to existing loans.
This has led to criticisms that it contradicts the view of financial authorities who believe loan interest rates should be lowered. With the benchmark interest rate having decreased by 0.75 percentage points over four months to reach the 2% range, expectations for a reduction in household interest burdens are growing. FSS Commissioner Lee Bok-hyun also noted, “We will look into how the reduction in the benchmark interest rate is reflected in loan interest rates.”
Even as the benchmark interest rate decreased last year, financial authorities have stated that they would directly examine the grounds for calculating loan interest rates since banks did not lower their loan rates. Financial Services Commission Chairman Kim Byeong-hwan also commented, “It seems that now is the time to reflect the reduction in the benchmark interest rate in loan interest rates.”
The COFIX (cost of funds index), which is the standard for variable interest rates on bank housing mortgage loans, has also been declining for four consecutive months. According to the Bank Federation, COFIX for new transactions in January was 3.08%, down 0.14 percentage points from December of last year (annual 3.22%).
Despite the direction of declining loan interest rates, there are complaints from consumers that it is contradictory for the policy loans of Dilimdol and Beotimok to have rising interest rates. The government has indicated that large-scale policy loans could stimulate overall loan demand by encouraging housing transactions and that the supply size should be adjusted to an appropriate level. In particular, financial authorities have observed that a concentration phenomenon is occurring due to the increase in policy loans such as Dilimdol and Beotimok in household lending.
However, Dilimdol and Beotimok loans are aimed at non-homeowning low-income households, each applicable only to dwellings under 60 million won and 40 million won with a designated area of 85 square meters or less, which makes it challenging to find suitable dwellings in the metropolitan area. With rising interest rates and reduced preferential rates, there are expectations that the interest burden on low-income households will significantly increase, raising criticism that policy loans intended for housing stability may instead become a burden for these households.
Professor Ko Jun-seok of Yonsei University said, “Policy fund loans are widely used by young people and newlyweds, and providing more support to help them acquire their own homes would contribute to increasing birth rates and so forth,” adding, “Raising the interest rates on policy fund loans artificially in the current phase of declining benchmark rates appears to contradict market order.”