As the financial authorities strengthen the management of household loans, the expansion policy for long-term, fixed-rate mortgage loans (home loans) of up to 50 years is also expected to retreat. The financial authorities reported that long-term home loans have been utilized as a means to circumvent the total debt repayment ratio (DSR) and instructed banks to conduct inspections. Consequently, it has become burdensome for the government to lead the launch of long-term home loans.
According to the financial sector on the 18th, the Financial Services Commission is conducting research related to the activation plan for private long-term, fixed-rate home loans. This is intended to increase the supply of long-term, fixed-rate home loans handled by banks for 10 years or more.
So far, the home loans that are fixed for a maximum of 50 years have mainly been policy loans such as the housing financial loans. Typically, fixed-rate home loans from commercial banks are mostly products that switch to variable rates after a 5-year fixed term. The financial authorities plan to improve the quality of household loans with long-term, fixed-rate to minimize the interest rate volatility risk for borrowers. The Financial Services Commission had planned to release a standard model for launching long-term, fixed-rate home loans from banks in the upcoming second half.
However, as household loans have recently surged, the financial authorities instructed banks to inspect long-term home loans. In response, SC First Bank shortened the loan term from the previous maximum of 50 years to 30 years and reduced the preferential interest rate by up to 0.25 percentage points. Other banks are also expected to reduce the terms for long-term home loans. The financial authorities determined that long-term home loans are being used as a means to circumvent the DSR. This is because an extended repayment period decreases the annual repayment amount, partially evading the DSR regulation.
The long-term, fixed-rate home loans promoted by the Financial Services Commission may reduce the risks associated with interest rate volatility, but they also have the effect of significantly lowering annual repayment amounts, thus increasing the total loan amount. In particular, with the application of stress DSR at level 3, the higher the long-term, fixed-rate, the more loan limits can be obtained. In the recent case of the United Kingdom, where long-term, fixed-rate products are being expanded, there have been products that allow loans of up to six times the income even when applying the stress DSR.
A source from a commercial bank noted, "Given the financial authorities' enhancement of household loan management and the activation of non-face-to-face home loan refinancing, it doesn't seem easy to handle long-term, fixed rates."