NARA - Japanese homebuyers are facing growing uncertainty as mortgage costs rise alongside a sharp increase in interest rates, with the yield on the benchmark 10-year government bond briefly topping 3% last week for the first time in about 30 years.
The rise marks a major shift from the ultra-low interest rate environment that dominated Japan for many years and is beginning to affect not only financial markets but also mortgages, household budgets, savings and corporate activity.
Around 40 years ago, during Japan's bubble economy, interest rates were so high that simply depositing money in a bank could generate substantial returns. Rates then declined after the bubble collapsed and the economy weakened, eventually entering a prolonged period of extremely low borrowing costs.
That environment has begun to change in recent years as long-term interest rates and the Bank of Japan's policy rate have increased.
One mortgage specialist said variable mortgage rates had effectively remained almost unchanged for 10 to 15 years, but Japan has now entered a period of rising rates.
The shift is creating concern among people considering buying homes at a time when property prices themselves have also risen sharply.
At a housing exhibition site in Nara Prefecture, a couple in their 20s visiting to discuss the design of a new home said they were excited about the purchase but also worried about financing.
"Of course I wonder whether we should really go ahead and build and buy a house," one of them said. "Prices are rising too, so to be honest, there is some anxiety."
The couple said choosing a mortgage had been difficult because they wanted to find the bank offering the lowest possible interest rate.
A representative of a mortgage comparison service said inquiries surged as interest rates rose, reaching about two to 2.5 times the usual level last weekend.
One of the most common questions is whether borrowers should choose a fixed-rate mortgage or a variable-rate mortgage that is periodically adjusted.
Fixed mortgage rates are currently around 3.2% to 3.3%, while variable rates are around 1% to slightly above 1%, leaving a gap of roughly 2.2 percentage points.
The specialist said variable rates remain more advantageous in simple cost calculations because the gap is so wide and recommended them under current conditions, while warning that borrowers must still prepare for the risk of further rate increases.
"Nobody can accurately predict the future," the specialist said. "Consumers need to keep the possibility of unexpected developments in mind and make sure they are prepared."
Rising rates are also affecting people who are already well into their mortgage repayment periods.
A 61-year-old man named Tanaka bought a detached house for 42 million yen 15 years ago.
His monthly mortgage payment initially stood at about 94,000 yen under a variable-rate loan and remained largely unchanged for a long period.
In recent years, however, his monthly payment has risen by more than 10,000 yen. Including bonus repayments, his annual burden has increased by about 180,000 yen.
"The amount has gone up quite a lot," Tanaka said. "It has been getting higher year by year, and that is difficult, to be honest."
Higher living costs and difficulty finding another job after retirement have made repayments even harder.
"I somehow managed to keep paying, but once it reached around 100,000 yen a month, it became tough," he said. "I thought about getting a part-time job, but once you reach 60, the jobs available to you become limited."
Tanaka considered a leaseback arrangement in which he would sell his home but continue living there while paying rent.
Seeking another way to remain in the property without selling it, he contacted an organization supporting people facing housing-related financial problems in January.
He ultimately chose to restructure the mortgage so that he would pay only interest for one year while extending the repayment period. He also decided to begin receiving his pension early.
A housing support official said cases like Tanaka's are not unusual, particularly among people whose finances deteriorate after retirement.
The official said consulting several organizations can help borrowers compare their options and identify the most suitable course.
Mortgage borrowers could face further pressure if variable rates rise significantly.
One calculation examined a 40 million yen home financed with a variable-rate mortgage. If the interest rate rose by one percentage point from 1.2%, monthly repayments could increase by about 20,000 yen and total payments over the life of the loan could rise by around 8 million yen.
A financial expert said interest rates are unlikely to continue rising indefinitely at their recent pace, but further increases remain likely.
Concerns over government finances and persistent inflation are contributing to upward pressure on rates, while the Bank of Japan is expected to continue raising its policy rate for some time.
"The Bank of Japan's rate increases are likely to continue a little longer," the expert said. "So I think the period of rising interest rates will continue for a while."
For people who need to buy a home soon, purchasing before rates rise further could be one option, the expert said.
However, mortgages often run for 20 or 30 years, and interest rates do not move in only one direction over such a long period.
They rise and fall with the economic cycle, meaning people who are not under pressure to buy immediately should avoid rushing and carefully consider their decision.
The effects of higher rates will extend beyond housing.
The Bank of Japan raises rates partly to restrain inflation, and higher rates can also make the yen more likely to strengthen, potentially helping to ease upward pressure on prices.
However, there is also a risk that higher borrowing costs could hurt economic activity while prices remain elevated, creating conditions similar to stagflation.
Companies are already facing higher costs for raw materials and labor.
If interest rates rise sharply, borrowing from banks will also become more expensive, increasing corporate costs further and potentially leaving companies with less room to raise wages.
That could weaken the recent momentum toward higher salaries.
Higher rates, however, also bring benefits to savers.
Interest on bank deposits, including time deposits, is beginning to rise after years in which returns were almost negligible.
Higher deposit rates could make savings products a more attractive option for people seeking relatively safe ways to manage their money.
Financial specialists said Japan is moving from a world in which interest rates barely mattered to one in which consumers must pay closer attention to where they borrow, where they deposit their money and which financial products they choose.
Banks are increasingly competing on interest rates, while lending conditions and savings returns are becoming more varied.
Consumers will therefore need to compare financial institutions and products more carefully as Japan adjusts to life with meaningfully higher interest rates.
Source: KTV NEWS
