Starting from the 8th, loans for housing sales and rental businesses secured by dwellings in the metropolitan area are fundamentally restricted. This is to completely block loans that can be used as a means to circumvent household loan regulations.
Additionally, homeowners can only receive 200 million won in jeonse loans in the metropolitan area, and the collateral recognition ratio (LTV) for housing loans in regulated areas will be strengthened from the current 50% to 40%.
On the 7th, the Financial Services Commission held an 'emergency household debt review meeting' at the government complex in Seoul and decided on additional regulations for household loans. The Financial Services Commission and related ministries explained that they agreed on the need for additional measures to reinforce some parts under the consistent management policy of the June 27 measures.
According to the additional household loan regulation plan, the LTV applied to regulated areas, including the three districts of Gangnam in Seoul and Yongsan, will be strengthened from the existing 50% to 40%. The Financial Services Commission explained that this is a measure to suppress loan demand in regulated areas where housing prices and loan amounts are relatively high and to strengthen the soundness management of households and financial companies.
Strengthening the LTV regulation will impact apartments priced between 1.2 billion won and 1.5 billion won in regulated areas. In Gangnam, if you purchase a 1.2 billion won dwelling, you could previously borrow up to 600 million won, but starting from the 8th, you can only borrow up to 480 million won.
The loan limit for homeowners in regulated areas and the metropolitan area for jeonse loans, which has been operated differently by three guarantee institutions such as Seoul Guarantee Insurance, Korea Housing & Urban Guarantee Corporation (HUG), and the Korea Housing Finance Corporation, will be unified to 200 million won. The regulation will apply regardless of the homeowner's property ownership. Currently, different institutions allow Seoul Guarantee Insurance to operate a 300 million won limit, and the Korea Housing Finance Corporation allows 220 million won for jeonse loans. HUG has a limit of 200 million won.
Reducing the jeonse loan limit for homeowners is expected to decrease the demand for moving from owned dwellings rented out to higher-priced rentals. About 30% of homeowners in the metropolitan area who have received jeonse loans will need to reduce their limits.
According to the Financial Services Commission, there are currently about 52,000 homeowners in the metropolitan area who have received jeonse loans. Among them, about 17,000 borrowers fall within the range of 200 million won to less than 300 million won, accounting for about 30% of the total. They are estimated to need to reduce their average loan amounts by about 65 million won due to this regulatory tightening.
The transition to higher-priced rentals is expected to accelerate the shift to monthly rent. The Financial Services Commission stated that they will enhance the management of rapidly increasing jeonse loans through this regulation.
Shin Jin-chang, Director General of the Financial Services Commission, noted, 'While the reduction of limits may cause inconvenience, there are ways to leverage funds through owned dwellings, and there are options to use living stabilization funds, credit loans, or other loans.'
The total debt principal and interest repayment ratio (DSR) for jeonse loans has been excluded from this regulation. The Director General stated, 'The expansion of DSR application to jeonse loans has been a consistent stance expressed by the government,' and added that they will comprehensively consider the impact of DSR implementation on household debt management and stability for the common people in determining the specific implementation timing and method.
Loans for housing sales and rental businesses secured by dwellings in the metropolitan area and regulated areas will also be restricted. Currently, LTVs of 30% for regulated areas and 60% for the metropolitan area are applied, but this will be strengthened to 0%. Non-metropolitan areas will maintain the current 60%. This regulation aims to block business loans that have been used to circumvent household loan regulations.
However, to prevent the adverse effects such as a decline in the supply of rental housing, exceptions will be made for housing sales and rental business loans first processed against newly constructed dwellings, as recognized by the Minister of Land, Infrastructure and Transport.
The criteria for the annual contribution rate (standard rate) that banks and others pay to the Housing Finance Credit Guarantee Fund will be reformed from existing loan types (fixed, variable interest rates, installment repayment, etc.) to be based on the loan amount. Starting in April of next year, increased contribution rates will be applied to individual loan amounts that are larger than the average housing loan amount of the financial institution participating in the Housing Finance Credit Guarantee Fund.
Currently, the contribution rate varies from 0.05% to 0.30%, depending on the loan type. After improvements, it is expected that if the loan amount is below the average loan amount, it will be 0.05%, between the average loan amount and twice that will be 0.25%, and over double the average loan amount will be 0.30%. However, the specific contribution rates have yet to be finalized.
If the individual loan amount is less than the average housing loan amount, the contribution rate will decrease. The Financial Services Commission plans to gradually reduce the incentives for financial institutions and borrowers to handle large housing loans through this.
Regulations, excluding adjustments to contribution rates for the Housing Finance Credit Guarantee Fund, will be implemented starting on the 8th. It was decided that contracts for sales and jeonse concluded before the implementation of this measure and completed loan applications will not be subject to these regulations. The Financial Services Commission agreed to allow borrowers with a limit of 100 million won for living stabilization purpose loans to refinance without an increase.
Director General Shin noted, 'Even after the announcement of the measures, we will closely monitor market conditions with the related ministries and will implement various available measures prepared in accordance with the response plans for household debt situations in a timely manner.'