As a result of the low dynamism of the local real estate market, in May 2025 the Chilean government implemented a direct subsidy to lower the interest rate on mortgage loans by up to 60 basis points, in order to boost home purchases and reactivate the real estate market.

This subsidy has the following characteristics:

• Applies to new homes up to UF 4,000, with promise of sale signed from January 2025 onwards.
• This subsidy will be granted in conjunction with a state guarantee and they will share the access requirements in order to achieve a total interest rate reduction even greater than the amount of the subsidy, expecting up to a 100 basis points reduction.
• The benefit lasts 24 months or until the 50,000 available quotas are used up.
• It is compatible with other subsidies (DS-1, DS-19, DS-15), which extends coverage to middle-income families.

Current balance of the program

The program has received 11,000 applications so far, of which 6,000 subsidies have been approved, equivalent to US$600 million in operations.

The rejection rate for applications is only 3.9%, a low rate compared to other funding programs.

Seventy-one percent of the loans are concentrated in homes of up to UF 3,000, a segment in which there is the greatest housing need and also the largest available stock.

Impact on the real estate market and housing stock

This subsidy program not only favored families looking to buy a home, but is also beginning to move and energize a market that had been showing signs of slowing down:

• Acceleration in new home sales: banks report an increase in demand for projects in execution, especially in peripheral communes where supply is more accessible.
• Reduction of accumulated stock: the Chilean Chamber of Construction had warned of an excess of new units available in 2023-2024. This subsidy contributes to decompress that stock, providing liquidity to real estate companies.
• Incentive for new projects: by improving housing turnover, greater certainty is generated to start new construction, which boosts employment in the sector.
• Segmented effect: the benefit is concentrated in homes up to 3,000 UF, which means that the reduction of stock will be more noticeable in projects oriented to the middle and lower-middle class, while the segment above 4,000 UF maintains a slower sales speed.
• Future pressure on supply: if the absorption of the stock is very fast and is not accompanied by new building permits, it could generate a rise in prices towards the end of 2026 due to lower availability of new housing.

Implications for families

In the case of a family that is thinking of buying a house costing UF 3,500, with a 30-year mortgage loan and with this program they obtain a reduction in the mortgage rate of 100 basis points with respect to the current average of 4.36%, with which the dividend would drop from $617,228 to $546,472, which means a monthly saving of $70,756.

The total cost of a loan for a home costing 3,500 UF (30-year term with 90% financing), without the subsidy would be $222,202,223, while the cost with the subsidy is reduced to $196,729,890, achieving a total savings of $25,472,332.

The mortgage rate subsidy described above has been well received by the market and is advancing strongly: more than 6,000 families have already benefited from it and it has shown a clear dynamizing effect on the market.

Thus, we elucidate the following implications in the following:

• In the short termIn the short term, it helps reduce the stock of new homes and reactivate sales.
• In the medium termcould encourage new projects and sustain employment in the construction industry.
• In the long termIf not accompanied by policies to ensure greater supply, the success of the program could translate into less housing availability and upward pressure on prices.

José Pablo González
Portfolio Manager Private Debt Fynsa AGF