New applications for reverse mortgages in South Korea increased while cancellations decreased as the real estate market showed signs of cooling at the end of last year. (Image courtesy of Yonhap)
SEOUL, Feb. 3 (Korea Bizwire) — In a sign of shifting market dynamics, new applications for reverse mortgages in South Korea increased while cancellations decreased as the real estate market showed signs of cooling at the end of last year.
According to data from the Korea Housing Finance Corporation’s housing finance statistics system, new reverse mortgage applications in December rose 18.2% to 1,507 from 1,275 in November, marking the highest level since March when 1,606 applications were recorded.
Monthly applications have been steadily climbing since hitting a low of 869 in September, the lowest figure since September 2023 when 779 applications were recorded. The numbers have shown consistent growth, rising to 1,070 in October, 1,275 in November, and 1,507 in December.
Conversely, cancellations of existing reverse mortgages declined. December saw 311 cancellations, down 2.5% from 319 in November, reaching the lowest level since March when 297 cancellations were recorded. Cancellation rates had previously peaked in July at 376, the highest in 2 years and 8 months since November 2021 when 407 cancellations were logged, but have been trending downward since then.
The reverse mortgage program, available to homeowners aged 55 and older, allows participants to borrow against their home equity while continuing to live in their homes, receiving monthly payments for life as retirement income.
Historically, reverse mortgage applications tend to increase during housing market downturns, while cancellations rise when housing prices surge, as homeowners evaluate their financial options. Analysts suggest that during periods of declining home prices, many find it more economically advantageous to either initiate or maintain their reverse mortgages.
A Korea Housing Finance Corporation official noted that while specific reasons for cancellations are difficult to track as they depend on individual choices, “there appears to be a correlation with housing price fluctuations.”
This correlation was evident in recent market data. KB Financial Group Research Institute reported that national housing prices in December fell 0.09% from November, marking the first decline in six months. Despite two benchmark rate cuts in October and November, banks’ maintenance of credit spreads led to tighter household lending conditions, resulting in decreased housing transactions.
In January, the average interest rate for new home-backed loans from deposit banks reached 4.30%, continuing a four-month rising trend since August of the previous year.
The outlook for housing prices remains subdued, suggesting continued popularity for reverse mortgages. The Bank of Korea’s Housing Price Outlook Consumer Sentiment Index (CSI) for January registered at 101, matching the lowest level since May of last year. The index had peaked at 119 in September, the highest since October 2021′s 125, before declining to 116 in October, 109 in November, and 103 in December.
Ham Young-jin, head of Woori Bank’s Real Estate Research Lab, predicted that regional housing markets would continue to struggle, while Seoul and metropolitan areas might see a “low start, mid-year recovery” pattern. He cited unusually low economic growth forecasts for the year and the implementation of phase three of the Debt Service Ratio (DSR) regulations in July as contributing factors.
M. H. Lee (mhlee@koreabizwire.com)
