Housing Credit Guarantee Fee Increase

The guarantee fee of housing credit loans by financial institutions will rise 100,000-200,000 won per 100 million won of loans, effective from August 16. Borrowers’ resistance is likely, as the new guarantee fee scheme will be applied retroactively. The housing finance credit guarantee program enables borrowers to obtain necessary loans with the guarantee of the Korea Housing Finance Corporation (KHFC).

The KHFC recently officially noticed 19 financial institutions that the annual guarantee fee rate of loans for house purchases would increase by 0.2 percent, from 0.9 percent to 1.1 percent, effective August 16, according to financial institutions on Wednesday.

The guarantee fee rate of loans for the lease of a house and for the intermediate payment of the housing will also rise to 1.0 percent from the current 0.8 percent, and to 0.8 percent from 0.7 percent, respectively.

Accordingly, the guarantee fee for an individual to borrow 100 million won loans will be increased to 1.1 million won per annum from 900,000 won for house purchases, to one million from 800,000 won for lease, and to 800,000 won from 700,000 won for intermediate payments. Balances of credit housing guarantees for individuals as of the end of June totaled 12.19 trillion won – 4.32 trillion won for purchases, 3.54 trillion won for intermediate payments, and 4.32 trillion won for leases.

This new scheme is applied to all guarantees for which the payment period is due. Borrowers who have paid guarantee fees in installments also have to pay the adjusted fees.

For example, those who borrowed 16 million won loans with a 10-year term by credit guarantee previously had to pay guarantee fees of 144,000 won per annum. Starting from August 16, they have to pay 176,000 won.

However, the KHFC decided to maintain the current level of guarantee fees of loans for leases by low-income households (0.5 percent) and by the working class (0.7 percent).

Some critics say that the KHFC raised the fees to pass on the losses incurred by guaranteeing non-collectible loans to housing finance consumers.

“The KHFC provided guarantees without proper credit analysis during the housing boom two to three years ago. And it is now raising the guarantee fees to compensate the losses,” said one banker.

“With the economic downturn, we failed last year to collect 576.3 billion won that we guaranteed,” said the KHFC. “Contribution funds from the government and financial institutions alone cannot cover the losses.”

Chang-Won Kim changkim@donga.com kyle@donga.com