For years, mortgages in Japan have been almost free. Homeowners are now gearing up to replace it.
The Bank of Japan has maintained benchmark interest rates near zero since the mid-1990s. As a result, many homebuyers have gotten used to paying between 0.3 and 0.4 percent for a floating-rate mortgage, or as little as 1 percent for a long-term, fixed-rate one.
Homeowners in the United States, where rates currently hover around 6.5 percent, “will be shocked to see rates like this,” said Takashi Shiozawa, an executive at MFS, which runs a popular Japanese mortgage comparison website. “He basically knows they’re free.”
But Japan’s central bank has announced an end to the era of zero interest rates. The Bank of Japan hiked rates March And JulyAnd has indicated that it plans to continue.
Unlike in the United States, where the mortgage rates Usually fixed for 30 years, most home loans in Japan have variable rates that fluctuate with benchmarks. Analysts predict that the rate will reach 1 percent in the next two years and then rise further. For some Japanese homeowners, that will mean a significant increase in monthly payments.
As a result, households are expected to find ways to cut other expenses — a shift that could drag Japan’s economy, which is already Unstable Due to weak household spending in the past year.
The prospect of rising interest rates is troubling homeowners, Mr. Shiozawa said. “It’s been almost 20 years since we’ve had a rate increase, so it’s causing a stir,” he said.
She got a bigger apartment and a lower mortgage.
When Kaori Yonemoto, an accountant at a semiconductor-related company in Tokyo, turned 32, she calculated how much she had spent on rent in her lifetime. She decided she needed to buy her own house.
Ms. Yonemoto’s first apartment, a two-bedroom unit in central Tokyo near a railway station designed by the Japanese architect Kengo Kuma, was not cheap. It cost more than $500,000, more than eight times her annual salary at the time.
Still, she felt it was worth it—the money was essentially free.
She contacted an online bank and got a rate of 0.527 percent for a floating-rate loan with no down payment. Her monthly payment was about $1,500.
That was five years ago. Ms. Yonemoto is now married with a 2-year-old son. She is selling her apartment and moving to a bigger house in the same building. To buy her new apartment, she went to a different bank and got a floating-rate loan, currently at 0.325 percent.
Along the way, Ms. Yonemoto began sharing her experience as a borrower on Instagram, offering advice and hoping to demystify home buying for people like her. These days she is closely following the news about the Bank of Japan.
If rates go to about 1 percent, “I don’t think it’s going to be too much of a strain on our lives,” she said. “But if it goes up to 2 percent, I’m going to start thinking, ‘Wait. . . .'”
The Bank of Japan’s decision to raise rates this year for the first time in 17 years was partly based on the belief that consumers can handle the hit to things like their mortgages, given that many of Japan’s biggest companies recently gave big pay raises.
Some experts aren’t so sure. Japan’s economy grew 0.8 percent in the April-to-June quarter, driven by a recovery in consumption, but this long duration Weak spending when wage growth lags behind inflation.
Older homeowners may have savings to draw on as a cushion against higher interest rates. “The ones that will suffer are the smaller households with mortgages,” said Stefan Angrik, senior economist at Moody’s Analytics in Tokyo.
“People say it’s just a small increase, but Japan has had very little growth – very little inflation – for decades,” he said. “It’s a whole economy that works on the scale of a small number.”
Indeed, some homeowners say the super-low rates were the primary reason they chose to buy property in Japan.
Larry Kelly, an American who works as an English teacher in Tokyo, said he stopped renting out the 1.25 percent he got on a 34-year fixed-rate loan from a Japanese bank and bought the house seven years ago. 38.
Today, he pays about $450 a month for his three-bedroom house in western Tokyo.
When Mr. Kelly told relatives in the United States about his home purchase, he noted, they jokingly suggested that he had secretly become very wealthy after moving to Japan. “No, you don’t have to be rich to buy a house here,” Mr. Kelly recalled telling him.
Everyone wants to know: What will the central bank do?
While there are no signs that rising rates have led to a major slowdown in new home purchases, Japanese homeowners are starting to get nervous.
In 2022, when the central bank announced it would adjust its policies to allow long-term rate increases, mortgage comparison website Moge crashed due to a surge in check traffic.
Mr. Shiozawa, whose company runs Moge Check, said engineers have since increased the capacity of the site’s computer servers.
Traffic on Moge Check’s site doubled when the Bank of Japan raised interest rates on July 31. Mr. Shiozawa said he has received a flood of inquiries from mortgage holders worried about how the bank’s decision will affect their rates.
In general, Japanese people have a strong aversion to loans, he said. Some of that disdain has been passed on to younger homebuyers by older generations who remember when rates were much higher.
In the late 1980s, real estate and stock market prices soared in Japan, and at some points homeowners faced mortgage rates of over 8 percent. When that asset-price bubble burst in the early 1990s, Japan’s economy slowed, and anxious households began saving more.
Mr. Shiozawa said he was concerned that higher mortgage rates could affect the confidence of homeowners, who already tend to cut back on other purchases to pay off mortgages as quickly as possible.
“If you’re using your money to pay off a loan early, you’re not spending it elsewhere,” Mr. Shiozawa said. He added that it’s one of a number of unseen ways that higher interest rates can put the brakes on the economy: the consumption mindset of homeowners “freezes.”
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