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15 April 2024

Japanese homeowners face an unfamiliar headache

By Reuters

When salaryman Takayuki Nakamura bought his Tokyo home last year, he got a floating-rate mortgage at a rock-bottom 0.35% and an assurance from the real estate agent that rates weren't going anywhere. After this week, he's not sure.

"On Tuesday, all of a sudden I'm hearing the interest rates are going up," said the 48-year-old father of two. "It's kind of obvious that I'm going to end up paying more."

The Bank of Japan whipsawed global financial markets when it said on Tuesday it would allow rates to rise a little more, signalling a potential end to ultra-low rates and easy money after decades of trying to revive the world's No.3 economy.

Like Nakamura, many Japanese fear they may eventually start paying more for mortgages. While any increase is likely to be modest, it would be a further injury to households worn down by years of flat wages.

"Even a small increase would have a big impact on consumer incomes," said Masaaki Kanno, chief economist at Sony Financial Group and a former central bank official.

Fixed-rates are seen rising first, because the central bank allowed 10-year yields to creep up. That means new borrowers could start paying more than they might have a year or two ago.

The government-backed Japan Housing Finance Agency offers 35-year, fixed-rate mortgages as low as 1.65%. That compares with 1.33% in December last year and is more than four times as high as some variable mortgage loans.

Floating-rate mortgages aren't expected to move anytime soon as they are tied to short-term rates that are still stuck in negative territory. Nevertheless, the central bank's move has plenty of borrowers worried they will one day face higher payments.

Sony Financial's Kanno reckons that as many as 80% or 90% of homeowners have opted for floating-rate mortgages, on the expectation that interest rates wouldn't rise. Many of them are now likely looking to switch to fixed-rate loans, he said.


Mortgage comparison website Mogecheck.jp was flooded with traffic that sparked a server outage some 40 minutes after the Bank of Japan's announcement. It was the first such incident since the site launched in 2015, said Takashi Shiozawa, chief operating officer of online mortgage broker MFS Inc, which runs the site.

Customer inquiries have more than doubled, with many asking if they should now consider getting a fixed-rate rather than a floating mortgage, Shiozawa said.

The company is telling them that floating-rate loans won't be affected as long as the central bank keeps short-term rates negative, he said.

  • The issue is also political

Prime Minister Fumio Kishida has made higher wages the centrepiece of his domestic political agenda and voters are waiting to see how much of a pay increase unions will get at their annual wage talks in spring.

But an increase in mortgage costs could eat into that wage bump in spring. The negotiations between unions and big manufacturers such as Toyota Motor Corp typically set the tone for the rest of the Japanese economy.

"I've heard customers saying they want to lock in their deals soon before the rates go up," said one employee at a Tokyo real estate agency, who declined to be identified because he was not authorised to speak to the media.

Some would-be buyers may now balk, given the risk that they may not be able to manage a potential increase, he said.

For Nakamura, the salaryman, the issue highlighted the deepening pain for single-income Japanese households such as his own.

"A person like me, the household income is dependent on the father - my wife is a stay-at-home mom. Gas prices are going up, the price of everything is going up, but salaries aren't going up," he said. "It's tough.