Mortgages in Japan - statistics & facts
Japanese lenders and home loan borrowers find themselves in a new environment in 2024. Accustomed to a decades-long phase of low interest rates, many mortgage holders have opted for variable rate loans that expose consumers to the risk of interest rate fluctuations. Adjustable home loan rates remained constant for over a decade until changes in monetary policy over the past year led to the first increase in 16 years in September 2024. As a result, homeowners in Japan are faced with higher borrowing costs.
Variable home loan rates are benchmarked against the short-term prime lending rates of major Japanese banks, while long-term interest rates serve as a benchmark for fixed-rate home loans. A change in the central bank’s policy regarding long-term interest rates led to several banks raising their fixed-rate housing loan rates. In 2024, the first major banks followed suit with adjustable rates, after the BOJ announced a second short-term policy rate hike.
Commercial and cooperative banks were the largest lenders of home loans. The government-affiliated Japan Housing Finance Agency ensures the provision of long-term fixed-rate home loans through securitization support and complements the private market with reconstruction and other home loans. With its loan purchase program, the JHF accounts for roughly eight percent of outstanding home loans in Japan.
Home buyers and financial institutions in Japan are faced with a new environment that could impact the housing industry and the economy in general. Changes in monetary policy have led to increases in mortgage rates over the past year. This has made borrowing less affordable for potential home buyers. While home loan holders with floating rate loans are directly affected by higher interest rates, the burden could be mitigated by a five-year mortgage regulation adopted by many banks, that only allows repayment amounts to be changed every five years.
Home loans and interest rates
Due to the zero-interest rate policy adopted by its central bank, Japan had a low interest rate environment for decades, creating a favorable environment for home loan borrowers that was further enhanced by competition between banks. In this environment, a majority of home buyers has preferred variable rate loans to fixed-rate loans. Interest rates on variable rate home loans can be adjusted over time. This usually results in lower interest rates at the expense of borrowers being more vulnerable to potential changes in interest rates.Variable home loan rates are benchmarked against the short-term prime lending rates of major Japanese banks, while long-term interest rates serve as a benchmark for fixed-rate home loans. A change in the central bank’s policy regarding long-term interest rates led to several banks raising their fixed-rate housing loan rates. In 2024, the first major banks followed suit with adjustable rates, after the BOJ announced a second short-term policy rate hike.
Biggest lenders and the Japan Housing Finance Agency
Outstanding home loans in Japan totaled 221 trillion Japanese yen in March 2024. The value of new mortgages originated in the fiscal year 2023 rose by 0.8 percent year-on-year. New residential construction declined by 4.6 percent in the same year.Commercial and cooperative banks were the largest lenders of home loans. The government-affiliated Japan Housing Finance Agency ensures the provision of long-term fixed-rate home loans through securitization support and complements the private market with reconstruction and other home loans. With its loan purchase program, the JHF accounts for roughly eight percent of outstanding home loans in Japan.
Home buyers and financial institutions in Japan are faced with a new environment that could impact the housing industry and the economy in general. Changes in monetary policy have led to increases in mortgage rates over the past year. This has made borrowing less affordable for potential home buyers. While home loan holders with floating rate loans are directly affected by higher interest rates, the burden could be mitigated by a five-year mortgage regulation adopted by many banks, that only allows repayment amounts to be changed every five years.
