More pressure on social housing buyers as lending rates increase to 6.6%

Interest rates for loans to buy, hire-purchase social housing, housing for the people's armed forces, and to build, renovate and repair houses will increase from 4.8%/year to 6.6%/year from August 1, 2024.

This adjustment level makes many people who are borrowing to buy social housing quite worried because of the increased pressure to repay the debt in the coming time. Even customers who intend to buy social housing in the future must consider before deciding, although the need for this type of housing is urgent for many families.

Analysts: Decree No. 100/2024/ND-CP detailing a number of articles of the Housing Law on the development and management of social housing, effective from August 1, 2024, has brought about a series of notable changes related to social housing lending.

One of the notable changes is that the lending interest rate is adjusted according to the lending interest rate for poor households prescribed by the Prime Minister in each period.

The overdue debt interest rate is also set at 130% of the normal lending rate. Accordingly, the lending rate for the poor will increase from 4.8% to 6.6% per year, which means that the social housing lending rate at the Social Policy Bank has increased by 1.8% compared to before. Therefore, the interest rate for loans to buy social housing will also apply the same level.

Mr. Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), commented that the lending interest rate of 6.6%/year is 1.8% higher and 1.37 times higher than the interest rate of 4.8%/year that the Social Policy Bank has provided preferential loans for buying and renting social housing from July 31, 2024 and before.

The application of a 6.6% annual interest rate from August 1 is not consistent with the nature of social housing loans. It is even higher than the 5% interest rate of the 30,000 billion VND package previously applied. With the new regulation, buyers and renters of social housing will be under pressure due to the unexpected increase in monthly interest payments.

Commenting on this issue, financial expert Dr. Dinh The Hien said that even if the interest rate for social housing loans is at 4.8%/year, it is still high and not very preferential.

The interest rate increase to 6.6% aims to ensure the sustainability of the lending program and reduce the burden on the State budget, but should only be applied to new social housing buyers.

With the new interest rate, new buyers will consider whether to borrow to buy social housing or not. As for those who have already bought social housing, the old interest rate should remain the same.

“According to the new regulations, buyers will no longer enjoy many preferential interest rates when buying social housing. Therefore, in the future, they may decide to buy cheap commercial housing that matches the quality. Or, they will spend some money to rent commercial housing and keep the rest, and when they have saved enough, they can buy an apartment or a piece of land in the suburbs that suits their affordability,” Mr. Hien commented.

From the perspective of a banking expert, General Secretary of the Vietnam Banks Association Nguyen Quoc Hung said that the approval of the 6.6%/year interest rate was carefully considered to ensure the balance of many factors; including long-term stability because the loan term is up to 25 years.

Deputy General Director of the Vietnam Bank for Social Policies Huynh Van Thuan shared that this lending interest rate has been summarized, evaluated and carefully calculated by the competent authority during the process of drafting the Government's decree. The draft decree has been widely consulted with ministries, branches, localities and people to complete and appraise before being submitted to the Government for promulgation according to regulations. This new interest rate is adjusted to ensure the sustainability of the lending program and reduce the burden on the State budget.

From another perspective, Dr. Dinh Trong Thinh believes that the increase in interest rates from 4.8% to 6.6% is not as important as increasing housing supply. If there is a lot of social housing on the market, people have the opportunity to choose many different products and brands, then the price may not increase as high as it is now. When the price is suitable for people's ability to pay, interest rates are no longer a concern. But now, not only is there a lack of social housing supply, but even affordable commercial housing is absent.

Currently, not only home buyers are worried about interest rate pressure, but investors are also in a similar situation. According to regulations, for investors building social housing for sale or lease-purchase, the preferential loan interest rate at the Social Policy Bank is equal to 120% of the loan interest rate for purchase or lease-purchase of social housing prescribed in each period.

Thus, the current lending interest rate for investors is 7.92%/year. This interest rate is slightly lower than the current lending interest rate of 8%/year of the VND120,000 billion credit package and lower than the previous commercial credit interest rate.

Faced with the fact that the current interest rate for social housing loans is not attractive enough for both businesses and home buyers, Mr. Le Hoang Chau proposed to consider continuing to maintain the interest rate of 4.8%/year for social housing loans at the Social Policy Bank to help create stability, especially when home buyers are still facing many difficulties.

At the same time, HoREA also proposed that the Prime Minister consider lowering the lending interest rate for poor households according to the standards prescribed for each period at the Social Policy Bank from 6.6%/year to 3-4.8%/year, similar to the housing support loan program for poor households with an interest rate of 3%/year.

This is to ensure consistency and synchronization in policies for poor households and those who buy or rent social housing. From there, it helps them to access preferential loans with interest rates from 3 to 4.8%/year, suitable for current reality.

Previously, at the regular Government press conference in July 2024, Deputy Minister of Construction Bui Xuan Dung said: The Ministry of Construction has also proposed that the State Bank study a new preferential loan package for social housing buyers with interest rates 3-5% lower than commercial loan interest rates with a loan term of 10-15 years.

This proposed interest rate is softer than the current preferential credit package, 1.5-3% lower than commercial loan interest rates. This preferential package is expected to create more motivation for low-income people and industrial park workers to borrow money to buy houses.