Can You Still Buy a Home as Rates Rise? Rethinking Japanese Mortgages

On 26 August 2026, reports showed that the Ministry of Finance's FY2027 budget request totalled 38.6948 trillion yen, up 15.1% from the FY2026 initial budget. Of that, debt servicing costs came to 36.6386 trillion yen, an increase of 17.1% and a record high. Combined requests from all ministries are expected to exceed 130 trillion yen in the general account for the first time, marking a fourth consecutive record.

For anyone thinking about a home, the telling detail is not the headline figure but the assumption behind it. The interest rate used to calculate debt servicing was raised to 3.8%. It stood at 3.0% at the FY2026 budget compilation stage and 2.6% at the FY2026 request stage, which means the government has rebuilt its own repayment plan around a higher rate than before.

That 3.8% is not a mortgage rate. It is an assumption used to estimate interest payments on government bonds, and it is a different number entirely. Still, the fact that the state is budgeting on the premise of rising rates is useful context for anyone about to borrow over several decades. This article sets out what is worth confirming before you buy when rate assumptions are moving. For decisions specific to your situation, we recommend consulting your lender and a licensed tax professional.

What does the government's 3.8% assumption have to do with your mortgage?

Directly, nothing. The rate the state uses to estimate interest on government bonds and the rate a bank offers an individual borrower are set differently and sit at different levels. Confusing the two leads either to unnecessary alarm or to misplaced comfort.

That said, they are not unrelated. At its policy meeting on 16 June 2026, the Bank of Japan raised the policy rate to around 1%, reported as the highest level in roughly 31 years. Following the resulting increase in the short-term prime rate, MUFG Bank has announced that it will revise the reference rate for variable-rate mortgages from 1 September 2026. The government's higher assumption is best read as a reflection of the same shift in the rate environment.

The practical move, then, is not to treat 3.8% as a forecast for mortgage rates but as a signal that borrowing costs are being repriced upward across the board. From there, the question becomes whether your own repayment plan can withstand that premise.

Variable or fixed: which should you choose?

A variable-rate loan starts lower but your repayments may rise if rates go up. A whole-term fixed loan starts higher but the repayment amount never changes until the loan is repaid. Which one wins depends on where rates go, so no one can settle the question in advance.

A safer framing is to stop asking which is more advantageous and start asking which one you can withstand. If you choose variable, confirm in numbers that your household could absorb a rate increase. If you choose fixed, keep the loan small enough to be comfortable at that higher rate. Either way, the deciding evidence sits on your side of the table, not the market's.

How does what you can borrow differ from what you can repay?

Pre-approval tells you a borrowing limit, which is the lender's view of how much it is willing to lend. What you can repay is your household's own ceiling, and the two rarely match. When rates are rising, the gap between them matters more.

Standard practice is not to build a budget on the monthly loan payment alone. Fixed asset and city planning taxes, plus management fees, repair reserve contributions and fire insurance for an apartment, recur every year. Divide the annual total by twelve, add it to the monthly loan payment, and test your household against that combined figure instead.

If you are a foreign national, what should you confirm first?

As a rule, foreign nationals can own property in Japan, and ownership itself is generally not restricted by residence status. The practical hurdle sits with financing: lenders typically weigh permanent residency, the type and remaining term of your residence status, length of employment, income earned in Japan and the size of your down payment.

Criteria differ from lender to lender, and the same applicant can get different answers. Submitting pre-approval applications to several banks before you start viewing properties, and getting the borrowing limit and conditions in writing, makes it far less likely that you will be asked for a larger down payment days before signing.

The SUMIMOTO Hub app gives you an AI valuation for a sense of where a property sits on price, while a 24-hour AI adviser explains repayment simulations and important matters statements in your own language. The more the rate assumptions move, the more it pays to gather your evidence early. For final borrowing terms and tax questions, please confirm with your lender and a licensed tax professional.