On January 31st, the Japan Housing Finance Agency (JHF) announced the nationwide number of Flat 35 loan applications, actual number of properties lent on, and actual financial amount lent for the period between October to December of 2021.

The total number of borrower applications for Flat 35 loans was 23,647, down 16.9% Year-on-Year (YoY). 

The number of actual units lent on was 18,264 (down 16.2% YoY), and the actual amount lent under the loan scheme was 564.3 billion yen (down 15.3% YoY).

JHF Flat 35 pormotional video.  Japanese only.  Source: Japan Housing Finance Agency

Flat 35 is a long-term, fixed-rate mortgage provided by a partnership between private financial institutions and the JHF. 

The private financial institutions lend to borrowers and then transfer the debt to the JHF, which repackages the debt as a mortgage backed security to raise funds.

Flat 35’s max loan term is up to 35 years and the interest rate is fixed for the entirety of the term, making the product popular with borrowers. 

In addition to borrower screening, the property must conform to certain technical standards set by the JHF in order to qualify for a Flat 35 loan.  

Developers usually build new inventory to these technical standards to assist with ease of sales and in this way, the JHF has been responsible for motivating increased developer adoption of newer and better building practices.   

For the borrower, Flat 35 loans can be used for homebuilding, purchasing a brand new or second hand property, or refinancing an existing loan.  Flat 35 renovation loans are also offered.

Originally named the Government Housing Loan Corporation and renamed the JHF in 2007, the agency financed approximately 30% of all residential property built in the post war era from 1950 to 2007.

Today, the JHF offers Flat 35 loans for a wide variety of properties and borrowers, from the individual purchaser looking to buy their own home to Homeowners Associations seeking financing to renovate common areas or rebuild their condominium complex.  

Recently, reverse mortgages have been offered for borrowers over 60 years old. 

JHF Reverse Mortgage promotional video.  Japanese only.  Source: Japan Housing Finance Agency

Since Flat 35 loans are government backed, the loan data tends to be seen as a bellwether for buyer demand. 

That said, it is difficult to say conclusively that the drop in loan applications is the result of softening buyer demand as Japan nationwide has been experiencing residential inventory shortages for the past several years. 

In other words, the drop in applications could mean there simply wasn’t enough property to buy that adhered to the technical standards set by the JHF.

By all indications, 2022 will see alleviation of residential property supply with more condos and freestanding homes expected to come on the market.  

Once this inventory becomes available for sale then the data will be clearer on whether buyer demand is indeed softening or if the drop in loan applications was the result of limited applicable supply.

Further Reading

JHF October to December 2021 Flat 35 Results Press Release (Japanese only; January, 2021)

JHF Integrated Report 2021 (English only; July, 2021)