The Rising Interest Rates on Social Housing Loans: A Growing Concern for the Financially Disadvantaged

Decree No. 100/2024/ND-CP, which took effect on August 1, 2024, has led to a rise in interest rates for loans to purchase or lease social housing and housing for the people’s armed forces. The interest rate has increased from 4.8% to 6.6% per annum, matching the current interest rate for loans to poor households.

Tran Thi Hoa from Hanoi shared her concern as she has a debt of 1 billion VND, borrowed from the Social Policy Bank to purchase social housing. With the new interest rate of 6.6%, she will have to pay an additional 18 million VND per year. “I bought a 60-square-meter apartment for over 1.5 billion VND and borrowed 1 billion VND from the bank. I have been paying around 48 million VND in interest annually for the past 15 years. I always thought that the interest rate for social housing loans would remain fixed. So, when the bank notified me of the increase from 4.8% to 6.6% per annum, I was surprised and worried. For low-income earners like me, who already struggle to make ends meet, this additional debt with a higher interest rate is indeed a burden,” she confided.

Sharing similar concerns, Nguyen Van Minh from Hung Yen province, expressed his worry that the 6.6% interest rate for social housing loans is too high. He illustrated this with an example, “Let’s say someone takes out a loan of 1 billion VND over 20 years at a preferential interest rate of 4.8% per annum. Now, with an additional 1.8%, they would have to pay more than 18 million VND per year, which is beyond their initial calculations and simply unaffordable.”

“In my opinion, the interest rate for social housing loans should not be increased because the borrowers have low incomes and have to carefully manage their monthly expenses. Asking them to bear the additional interest burden would be extremely challenging,” Minh added.

Commenting on this interest rate, Le Hoang Chau, Chairman of the Ho Chi Minh City Real Estate Association (HoREA), stated that 6.6% per annum is considerably higher than the current lending rates offered by commercial banks. He mentioned that some commercial banks provide consumer loans of up to billions of VND with interest rates ranging from 4.2% to 5% per annum, without requiring collateral but only proof of repayment capability.

Therefore, he suggested that a suitable interest rate for social housing loans at the Social Policy Bank should be around 3% to 4.8% per annum. “The application of a 6.6% interest rate from August 1 is inconsistent with the nature of social housing loans and is even higher than the 5% rate of the previous 30,000-billion-VND package. To ensure stability and support for homebuyers who are already facing difficulties, the interest rate for social housing loans should remain at 4.8%,” stated Le Hoang Chau.

According to Mr. Chau, this increase not only worries borrowers but also affects businesses investing in social housing construction. He explained that according to Decree No. 100/2024/ND-CP, for projects investing in the construction of social housing for sale or lease-purchase, the preferential interest rate at the Social Policy Bank is 120% of the interest rate for borrowers who buy or lease-purchase social housing. Consequently, with a 6.6% interest rate, the rate for these businesses would be 7.92% per annum, which is only slightly lower than the current 8% interest rate of the 120,000-billion-VND credit package and the previous commercial credit rate. Nonetheless, it is still relatively high.

Giang Anh Tuan, Director of Tuan Anh Real Estate Floor, agreed that the increase to 6.6% per annum for low-income earners borrowing to buy social housing is unreasonable and will put borrowers in a difficult position. Meanwhile, market interest rates have risen slightly but remain low, with some banks offering rates below 5-6% per annum.

Additionally, the State Bank of Vietnam and the Ministry of Construction are proposing to further reduce the interest rate of the 120,000-billion-VND package to support the people. The current interest rate for social housing loans under this package is 7.5% per annum, and if the proposed reduction of 3% per annum is approved, it will drop to around 6%.