The delinquency rate on Bogeumjari Loans among low-income borrowers has climbed above 1%, a sign that even government-backed mortgages designed for low- and middle-income households are coming under strain. Although the Bogeumjari Loan carries a fixed rate, arrears tend to rise when higher interest rates coincide with a slowing economy. Analysts say the trend points to a rapid deterioration in the ability of vulnerable borrowers to keep up with payments, given that the product targets low- and middle-income households and owner-occupier buyers.
Data released on the 18th by the office of Rep. Park Sung-hoon of the People Power Party showed a clear gap in Bogeumjari Loan delinquency rates across income brackets. For borrowers earning more than 70 million won a year, the rate stood at 0.11% in 2020, held in the 0.1% to 0.2% range afterward, and reached 0.31% in July. For borrowers earning 10 million won or less a year, the rate was already 1.48% in 2020, fell to between 0.5% and 0.8%, then rose again to 1.01% in July.
Long-term arrears are also mounting. Loans overdue by more than a year rose 3.9-fold, from 38.4 billion won in 2020 to 148.2 billion won at the end of July. Over the same period, loans overdue by more than six months rose 4.2-fold, from 55.1 billion won to 230.3 billion won, and those overdue by more than three months rose 4.3-fold, from 71 billion won to 302.2 billion won.
Low-income borrowers also posted relatively high delinquency rates on ultra-long mortgages, whose extended maturities are meant to lower monthly payments. At the end of July, delinquency rates on Bogeumjari Loans with 40- and 50-year terms stood at 0.72% for borrowers earning 10 million won or less a year and 0.89% for those earning between 10 million and 30 million won. The rate for the lowest bracket had risen as high as 1.14% at the end of last year. By contrast, the rate at the end of July was 0.26% for borrowers earning between 60 million and 70 million won, and 0.33% for those earning more than 70 million won.
The high delinquency rates among low-income borrowers cannot be explained simply by their borrowing heavily against home values. Delinquency rates typically rise with loan-to-value ratios, yet last year the average LTV for borrowers earning 10 million won or less who took out 40- and 50-year Bogeumjari Loans was 51.3%, or 16.6 percentage points lower than the 67.9% for borrowers earning more than 70 million won. In other words, low-income borrowers had taken on smaller loans relative to the value of their homes. Park said management of the program needs to weigh not only loan size against collateral value but also the income and cash flow available to cover monthly principal and interest.
A similar pattern appears across households more broadly. According to a survey of household finances and welfare by the National Data Agency, households in the bottom 20% by income carried average debt of 16.69 million won as of the end of March last year, the lowest debt-to-income ratio of any bracket. Yet 16.6% of them were behind on payments, more than five times the 3.0% share among households in the top 20%. That indicates low-income households are struggling to repay even modest debts.
Kim Dae-jong, a professor of business administration at Sejong University, said the rise in delinquencies on a fixed-rate product points to a broader weakening of household repayment capacity. "I see this as driven more by deteriorating incomes and employment conditions, rising living costs and heavier principal and interest burdens on other loans," Kim said. "In particular, if long-term arrears keep increasing, it may mean borrowers' repayment capacity is weakening structurally, not just that they are short of cash temporarily." An official at the Korea Housing Finance Corporation said the agency understands the rise in delinquency rates over recent years to reflect the broader economic slowdown.
There is also concern that a prolonged period of rising rates could further erode the capacity of vulnerable borrowers to repay. In the past, Bogeumjari Loan delinquency rates have risen with a lag during periods of monetary tightening. According to the Housing Finance Research Institute, the rate climbed during two rate-hike cycles, from 2010 to 2012 and from 2017 to 2019. Delinquencies fell and stabilized starting in 2020, when ultra-low rates were maintained in response to COVID-19, but have been climbing again recently.
New borrowers are facing heavier rate burdens as well. The upper end of the Bogeumjari Loan rate is about 1.7 percentage points below the fixed mortgage rates at the five largest banks, which range from 4.94% to 6.92% a year. But compared with a range of 3.90% to 4.20% in January, both ends have risen by 1 percentage point in eight months. The Korea Housing Finance Corporation has raised the rate five times this year, citing higher market rates on treasury bonds and mortgage-backed securities as well as rising funding costs.
Park said the repayment burden is materializing first among low-income borrowers in a policy mortgage program meant to help low- and middle-income households buy a first home. "We need to strengthen the management framework so that repayment distress among vulnerable borrowers is detected and addressed early, before it turns into long-term arrears," he said.
