While housing affordability has been a top complaint in Taiwan for years, a new government scheme for supporting young people buying homes seems to be working.
State-run banks participating in the scheme have steadily offered low-interest mortgages to first-time home buyers over the past few months, extending an aggregate of NT$264 billion (US$19.44 billion) of new mortgages to 36,388 borrowers as of the end of February, up from NT$16.8 billion for 2,599 borrowers in August last year when the government started implementing the program, data from the Ministry of Finance show.
The new mortgage initiative for first-time home buyers has more flexible conditions for loan applications and sets a lower barrier for young people than the previous similar scheme.
For instance, it increases the maximum loan amount from NT$8 million to NT$10 million and extends the loan period from 30 to 40 years, with the government and state-run banks subsidizing 0.375 percent of the mortgage rates. The scheme also extends the grace period for borrowers from three years to five, meaning that they only have to make payments on interest, and not on the principal during that period. The interest subsidy scheme is to last for three years until July 31, 2026, lowering the preferential interest rate to 1.775 percent over the period, the ministry said.
Even though the central bank last month unexpectedly announced an interest rate hike of 0.125 percentage points to curb inflation, the ministry said the government would absorb the extra borrowing costs, which has not only helped first-time home buyers, but also widened the interest rate difference between the new scheme and other standard mortgages, making it more attractive to young people.
Of the 54,000 mortgages extended by banks in the fourth quarter of last year, the new scheme contributed 18,000 mortgages, or one-third of the total, making it an important force in driving the nation’s property market, following five interest rate hikes by the central bank since March last year.
Moreover, housing prices could climb higher this quarter on improved buying interest, partly induced by the government’s preferential loans for first-home purchases, a survey by Evertrust Rehouse Co showed.
The survey also found that 48 percent of respondents expect the maximum loan amount to be maintained at the current level of NT$10 million, while 25 percent said they hope the amount could be increased to NT$12 million and 27 percent would like NT$15 million for the maximum amount.
Up to 46 percent of those polled said they hope the grace period would remain at five years, 11 percent expect the period to be extended to six years, 9 percent said eight years and 34 percent hope the period can last for 10 years.
Fortunately, the survey showed that many people still understand that mortgages would eventually get repaid, therefore the longer the grace period, the higher the total repayment would be.
Buying a home is a practice of high financial leverage and any adjustments in interest rate would have a greater effect on home buyers. Therefore, borrowers need to plan carefully, as the interest subsidy only lasts for three years, with the rate rising from 1.775 percent to 2.15 percent in the fourth year of the loan repayment period, meaning higher interest costs.
For years, the government has provided various preferential mortgage packages to help young people buy homes, but whether it would achieve its intentions also depends on people’s wages and how fast they increase, as the longer the loan repayment is, the higher the sacrifice in people’s quality of living. As a result, the government must review its mortgage scheme on a rolling basis and offer support measures for young people in a timely manner.
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