Hi, guys! I hope you guys have waited for my next article.
The topic for today is very closely related to the issue of ‘house poor’ which I wrote several times. I guess by now you all know what a house poor, right? However, for the readers who haven’t read my previous articles on the issue, I will briefly explain the basic idea of house poor once again. House poor refer to households having their own houses but regarded as being poor. Why are they considered poor even if they have their own houses under their names? This is because those people purchase their houses with excessive mortgage loans at low interest rates, when the housing prices skyrocket.
* Related Post, ‘A Closer Look at House Poor’, https://financialservicescommission.wordpress.com/2012/09/25/a-closer-look-at-house-poor/
Lots of countries, including Korea, fostered policies of lending out mortgage loans at low interest rates. Despite its intention to invigorate economic situations, it led to numerous problems. Above all, the biggest problem is a concern related to house poor. It needs to be acknowledged that financial authorities and the congress have tried hard to design and implement lots of financial policies to save house poor out of debt traps. However, such efforts did not seem working well. This article tells you another measure for house poor, which was newly announced by the Bank of Korea few days ago. This policy is considered as one of the most groundbreaking measures.
If you read my previous post about ‘parliamentary inspection of the administrative boards’, you would notice that there were lots of questions asked in regard to saving the house poor. Considering the urgency to address this issue, the Bank of Korea announced ‘a fall in the rate of interest’. This measure, extensively focusing on the house poor problem, is also expected to stop plunging the real estate market in Korea.
However, just like any other policies, a fall in interest rate might not bring an expected outcome. If so, the effect of low interest rate will be very limited in the real estate market. Moreover, considering the continuous economic stagnation, the low interest rate cannot guarantee an instant relief in the market.
With the announcement by the Bank of Korea on 11th of October, the interest rate fell from 2.75 percent to 2.5 percent, which is a significant decrease. The Bank of Korea held a view that this fall in interest rate will prevent further proliferation of house poor, while bolstering government policies to vitalize businesses.
After the announcement by the Bank of Korea, there are increasing enquiries in real estate market. People are wondering how they should plan for home loans. Without doubt, this change in interest rate has both pros and cons. Some house poor would welcome this policy, while others do not. For this measure to bring the best feasible outcome as expected, the government should encourage more participation and cooperation of other financial institutions. And for now, a close monitoring is in need to see whether the low interest drives our economy in the right direction.