On September 5, Sankei Shimbun ran a story that’s gotten a lot of attention. Sankei reports that the homeowning rate among Japanese people in their 20s is the highest it has ever been. The reason is the skyrocketing price of real estate in major urban regions, in particular the Tokyo metropolitan area, and an increase in interest rates for housing loans that may go even higher in the future. The idea is to buy now before properties and loans become too expensive, and now that some banks are offering 50-year loans it becomes a bit easier, at least theoretically.

The communications ministry says that the home ownership rate in 2025 among households where the head-of-household is in their 20s was 40.7 percent, the highest on record. Sankei reports that experts tend to recommend you not buy a home whose price is more than 6 times your annual income, but according to the job search magazine Recruit, in the Tokyo metropolitan area prices for new condominiums are going for 8 times the average annual income, regardless of age. 

Since a good number of households with married couples in their 20s have double incomes, these couples are choosing so-called pair loans, where both spouses shoulder the debt. A 50-year loan spreads out the payments more, rendering each monthly payment lower than if the couple took out a standard 35-year loan, so if a couple takes out the loan at 25, they would finish paying it off at 75. Though this makes the montly pressure less, it also reduces the couple’s ability to save for old age, especially since the longer the payment period, the higher the interest rate. 

The day before the Sankei article, Asahi Shimbun went into more detail about what these young people will have to contend with by buying property so soon. The central point of the Asahi article is that the Bank of Japan, by raising its prime rate for the first time in 31 years last June, is also causing interest rates on housing loans to rise. The two megabanks, MUFG and Mitsui-Sumitomo, increased their variable interest rates for housing loans this month by about 0.25 percentage points. Asahi calculates that this rise in interest will increase monthly payments for a 35-year loan on ¥50 million by ¥20,000. Mizuho and other major banks have not announced any increase in interest rates, but probably will at some point.

Potential home buyers also have to take into consideration that the BOJ is likely to raise rates even more in the future. So right now MUFG and M-S are charging 3.375 percent interest for a standard loan, though the rate can go as low as 1.195 percent for “preferential loans,” meaning borrowers whose ability to repay the loans is easier to guarantee. 

Eighty percent of borrowers choose variable interest rather than fixed interest because, initially, variable rates are lower; but, of course, they are subject to change every six months or so depending on economic circumstances, so they could easily go up. 

According to a housing loan research organization, if someone borrows ¥50 million for 35 years at the variable rate, they will pay on average about ¥20,000 more in monthly payments after the BOJ increase than they did before the increase. 

The organization also reports that almost all the people who choose a variable interest rate also choose to pay interest and principal at the same time and in the same monthly amounts, regardless of the current interest rate, but in doing so they tend to pay more interest in the long run. Those who choose to pay the interest first pay less interest in the long run. And those who pay both interest and principal at the same time with the interest changing based on the balance of the principal—meaning the monthly payment will not always be the same—will also pay off the interest more quickly. 

In order to illustrate how these changes are affecting payments, Asahi focused on a man in his 30s who in 2019 bought a 2LDK, 60 square meter condo 7 minutes from Kawasaki Station for ¥60 million. At that time the BOJ was following a “minus interest” policy, and the man was able to secure a 35-year variable interest rate loan from a net bank at 0.395 percent. His monthly payments were ¥68,332. The portion of that amount that was interest was 13 percent, or ¥8,821.

However, last April his variable rate increased to 1.145 percent. His monthly payments did not change, but now the percentage of those payments that comprise interest is 31 percent, or ¥21,000. The man told Asahi he now fears he will be paying much more in interest in coming years, especially since he heard the BOJ is going to increase the interest rate again soon. 

With a fixed repayment system, it is the interest portion that increases, which means paying off the principal is postponed. Eventually, either the monthly payments have to increase accordingly, or the loan period has to be extended, which might involve penalties and higher interest. This is one reason young people are taking out 50-year loans, though, in truth, if they follow the same fixed repayment system they will eventually run into the same problem, only at a much later age, when they may not be able to pay off their loan as easily due to their being on a fixed income.

Still, that’s 50 years down the road, so who knows what will happen between now and then. One thing’s for sure. It’s unlikely that the value of their property will go up as long as the population continues to dwindle. 

One expert told Sankei that he advises potential homeowners to buy a home in an area “where the asset value remains stable,” a recommendation that would seem to require clarification. Right now, the only places where properties are likely to retain their value in the long run—meaning by the time the owner is set to retire—is Tokyo and other major regional cities. But just because property values are hitting record highs right now it doesn’t mean they will remain high when the people buying those properties now are in their 60s. It used to be that you could pay for your retirement by selling your house, but that may not be the case any more.