Policy-backed mortgage loans for low- and middle-income Koreans without homes have plunged more than 40% as the government tightens household debt across the board to stabilize property prices.
According to the financial industry Thursday, first-quarter disbursements of Didimdol loans, a policy home purchase loan program, totaled 4.08 trillion won, down 37.4% from a year earlier. Butimmok loans, which support jeonse rental deposits, shrank 50.7% to 2.28 trillion won from 4.62 trillion won over the same period. Combined, the two products declined by 4.78 trillion won.
Analysts point to the government's June 27 measures last year, which cut the lending caps of both programs by up to 100 million won. The Didimdol ceiling was reduced from 250 million won to 200 million won under the standard criteria, and from 500 million won to 400 million won under the newborn special program. By contrast, sales of Bogeumjari loans, which were not subject to the cap changes, nearly doubled year-on-year in January and February to approach 5 trillion won.
Rising home prices in the Seoul metropolitan area have also reduced the pool of housing units eligible for policy loans. "It must be taken into account that these two products are for genuine end-users," said Suh Jin-hyung, professor of real estate law at Kwangwoon University.
Didimdol and Butimmok loans are flagship policy financing products that offer housing funds at rates lower than commercial banks to borrowers who meet income, home price and deposit requirements. However, their caps were sharply reduced after excessive benefits were blamed for fueling property price increases in the Seoul metropolitan area. Authorities cut the ceilings by up to 100 million won through last year's June 27 measures.
The effect has been clear. According to the financial industry, the average Didimdol loan for home purchases stood at 231 million won in the first quarter, down 6 million won from 237 million won a year earlier.
The decline was steeper for Butimmok loans, which support jeonse deposits. The average loan shrank to 95 million won in the first quarter from 113 million won a year earlier.
Loan volumes also dropped sharply. Didimdol loans totaled 17,677 in the first quarter, down 35.7% from a year earlier, while Butimmok loans fell 41.3% to 23,978. The measures have clearly succeeded in curbing policy loans and the housing demand they drive.
Commercial banks' own mortgage lending shows a similar pattern. With regulations targeting borrowers based on home values and ownership status, the average size of mortgage loans per borrower at Seoul banks has dropped more than 30%. "Since the June 27 measures took full effect in the second half of last year, the average size of mortgage loans in Seoul has fallen 30% to 40%," an official at Bank A said. An official at Bank B added, "Nationwide new mortgage disbursements last month were at about 70% of the level seen in June last year."
The problem lies with genuine end-users. While home price gains in the Seoul metropolitan area have recently slowed, overall price levels remain higher than last year. According to KB Real Estate, the average sale price of a Seoul apartment was 1.555 billion won in March, up more than 250 million won from 1.297 billion won in March last year. The average jeonse price in Seoul also rose to 677 million won last month from 635 million won in March last year. With policy loans tightly restricted and commercial mortgage caps reduced, end-users face mounting difficulties.
The possibility of further regulation on policy loans cannot be ruled out, particularly as Bogeumjari loans from the Korea Housing Finance Corp. have been rising. Sales of Bogeumjari loans totaled 4.98 trillion won in January and February this year, surging 96.5% from a year earlier. While the June 27 measures last year reduced the caps on Didimdol and Butimmok loans, Bogeumjari loans, another form of policy lending, were excluded.
Market participants say any additional lending curbs will deliver diminishing returns. "Average loan sizes have already fallen substantially from a year earlier, so there is little room for further decline even with more regulation," a credit officer at a commercial bank said. "This means the impact of the government's lending curbs on containing home prices is becoming increasingly limited."
Some argue that easing lending rules for genuine end-users should run alongside the restrictions. The government began restricting mortgage renewals for multiple-home owners on the 17th in an effort to push more homes onto the market, but those actually in need of housing find themselves cut off from loans and short of funds to purchase homes. Still, financial authorities maintain that they are not considering easing lending regulations.
