SEOUL, July 18 (Yonhap) — The government and the ruling party agreed Sunday to allow low-priced homeowners to exchange their variable-rate loans for fixed-rate ones, as part of efforts to help ease the financial burden amid rapidly rising borrowing costs.
The decision was made at a policy consultative meeting between the government and the ruling People’s Power Party, where the recent rapid and sharp interest rate increases by the central bank have put the burden on many people who have bought homes on loans.
“We agreed that it is necessary to give the highest priority to price stability and livelihoods,” a party spokesman said following the meeting.
In a related move, they agreed to allow homeowners of less than 400 million won (US$301,640) to replace their variable-rate loans with fixed-rate ones starting in September as part of efforts to ease the burden of interest payments, according to the spokesperson.
Borrowing costs have been rising rapidly, as banks have raised lending rates in parallel with recent central bank moves to raise interest rates in order to curb rapidly rising inflation pressures. Last week, the bank raised the interest rate by half a point, which also represents the sixth increase in the cost of borrowing since August last year.
Many homebuyers had taken out variable-rate loans, as bank lending rates had long been maintained at record low levels to support the pandemic-hit economy. However, monetary tightening from the Bank of Korea increased the burden of paying interest faster than those who took out fixed-rate loans.
The government and the ruling party also discussed issues related to the recent financial market conditions and agreed that it was necessary to press for the implementation of a currency exchange channel with the United States, saying that it would act as a “repressor” that might prevent further depreciation of the local currency.
South Korea and the United States maintained a $60 billion currency swap deal under which Seoul might borrow dollars in exchange for its local currency, a scheme aimed at allaying market anxiety over the possibility of a dollar crisis. But the temporary deal expired at the end of last year, as scheduled, with the market relatively stable.
The won has seen a significant decline in its value since the beginning of the year, with rising concerns regarding a global recession and the disposal of risky assets, increasing the need for a new currency swap channel to stabilize financial markets.
