SEOUL, July 17 (Korea Bizwire) — The government and the ruling party on Sunday agreed to allow low-priced home owners to replace their floating rate-based borrowing with fixed ones as part of efforts to help ease their financial burden amid fast-rising borrowing costs.
The decision was made at a policy consultation meeting between the government and the People Power Party (PPP), as the central bank’s recent swift and sharp rate hikes have resulted in a spike in interest-payment burden on many people who have bought homes with borrowed money.
“We shared the view that top priority should be put on the stability of prices and livelihoods,” a PPP spokesperson said after the policy meeting.
In a related move, they agreed to allow people owning homes valued below 400 million won (US$301,640) to replace their borrowing based on floating rates with fixed ones starting in September as part of efforts to ease burdens from interest payments, the spokesperson said.
The PPP proposed around 4 percent as a fixed interest rate as an option for those homeowners, though details, such as the home price ceiling for determining the change in borrowing arrangements and others, remain subject to the government’s internal discussion, according to the spokesperson.
Borrowing costs have been rapidly mounting, as banks have raised lending rates in tandem with the recent push by the Bank of Korea (BOK) to hike its policy rate aimed at reining in fast-rising inflation pressure.
Last week, the BOK delivered its first-ever “big-step” half point rate increase, which also marked the sixth increase in the cost of borrowing since August last year.
Many homebuyers had taken out loans on a floating rate borrowing arrangement, as banks’ lending rates had long been maintained at record lows to shore up the pandemic-hit economy.
The BOK’s aggressive monetary tightening, however, has raised their interest-paying burden faster than those who borrowed money on fixed rates.
The government and the ruling party also discussed issues related to recent financial market conditions and shared the view that it is necessary to push for a currency swap channel with the United States, saying it will serve as a “brake” that could forestall a further decline in the local currency’s value.
South Korea and the U.S. had maintained a US$60 billion currency swap deal, under which Seoul could borrow dollars in exchange for its local currency, a scheme intended to assuage market anxiety possibly caused by dollar crunch.
But the temporary deal expired at the end of last year as scheduled amid relatively stabilized market conditions.
But the won has lost much ground since the start of this year on rising concerns over a global recession and mounting aversion to risky assets, which have raised the need for the reopening of the swap channel to stabilize local financial markets.
Speculations have arisen that the two countries could discuss the reopening of a currency swap line, as U.S. Treasury Secretary Janet Yellen will visit South Korea this week, and meet with key financial and economic policymakers.
Last week, BOK Gov. Rhee Chang-yong told reporters Yellen will likely hold discussions with South Korean officials on various measures for foreign exchange market stabilization.