How South Korea is slashing home loan rates to spark a baby boom

Most expecting parents prepare for sleepless nights, frozen dinners and perpetual piles of laundry. But for young couples in South Korea, cheaper mortgage deals also await.

It is one of the many bonuses that come with being a new parent there – on top of monthly cash stipends, heavi ly subsidised childcare, and specialised postpartum centres offering hotel-style care.

Faced with one of the world’s lowest fertility rates, the South Korean government wants to spark a baby boom. The number of children a woman is expected to bear during her lifetime stood at 0.78 in 2022. In the capital Seoul, the average is 0.59. Countries need a rate of around 2.1 to preserve the population.

Korean couples have partially blamed a lack of affordable family-sized homes for the baby bust. It is why new parents will now be eligible to apply for a mortgage with a rate between 1.6pc and 3.3pc for five years, if they have had a child in the last two years and together earn no more than 130m won (£79,000) annually.

That is around one to three percentage points cheaper than loans offered by commercial banks. If a parent already benefiting from the special mortgage has another child, the government will cut the rate by another 0.2 percentage points and extend the borrowing period by five years.

These low- cost loans and cash payouts are designed to entice young people to get married and start families. In Busan, South Korea’s second-largest city, the government gives a separate cash bonus to women who have given birth at least three times, which increased recently from 500,000 won (£300) to 10m won.

So far, the government has said its plans will concentrate on child care, education, parental leave, flexible working hours, housing and improving access to fertility treatments. Across the country, the government will also roll out an expansion of a monthly allowance for parents with a child aged below one, increasing from 700,000 won to 1m won, and for a one-year- old from 350,000 won to 500,000.

On top of this, the government is planning an increase in parental leave to 18 months and its spring budget for next year has outlined proposals to inject nine trillion won into “housing stability” for families with a newborn child under two.

It also plans to reduce income requirements for purchasing or leasing houses, as well as prioritise the housing supply system for new parents.

Like in Britain, a shortage of affordable, family- sized homes is eroding young people’s desire and ability to raise children. Household debt reached 206pc of disposable income in 2021, well above even the 148pc in Britain.