Starting on the 16th, when purchasing dwellings priced over 1.5 billion won and up to 2.5 billion won in the Seoul metropolitan area and in regulated zones, home mortgage loans will be capped at 400 million won. If the dwelling price exceeds 2.5 billion won, the loan limit will be further reduced to 200 million won.
As home prices have been slow to stabilize even after the June 27 and Sept. 7 measures, the loan cap appears to have been lowered further to curb demand for purchasing high-priced dwellings.
The government held a meeting of ministers related to real estate on the 15th and announced measures to stabilize the dwellings market. The meeting was attended by the deputy prime minister for the economy, the land ministry minister, and the Financial Services Commission chair, among others.
The government said that since the June 27 measures were announced, the growth of household loans has stabilized, but as home prices continue to rise mainly in the Seoul metropolitan area, it has decided to tighten lending regulations further.
The core of this package is applying a differentiated cap on home mortgage loans based on dwelling price. For purchases of dwellings priced at 1.5 billion won or less in the Seoul metropolitan area and regulated zones, the loan cap remains at 600 million won, the same as before, but for dwellings over 1.5 billion won, the cap is reduced. For dwellings priced over 1.5 billion won and up to 2.5 billion won, the loan cap is 400 million won, and if over 2.5 billion won, 200 million won is the maximum.
Market price will be determined by the Korea Real Estate Board (REB) price or the "general average price" of KB Real Estate Market Price, among others. Shin Jin-chang, Director General of the FSC's Financial Policy Bureau, said at a briefing that day, "Since the June 27 measures were announced, household loans have decreased, but home prices are rising, centered on high-priced dwellings. This trend is leading to price increases for mid- and low-priced dwellings," adding, "The purpose of this regulation is to block demand for purchasing high-priced dwellings."
Also, when taking out a home mortgage loan in regulated zones, the stress interest rate (add-on rate) applied in calculating the debt service ratio (DSR) will be adjusted upward from 1.5%–3.0% to "3.0% or higher." When calculating DSR, the stress rate is added to the actual rate; if the stress rate rises and the rate is set higher, the borrower's principal and interest payments increase, reducing the loan limit. Shin, the Director General, said, "We expect per-borrower loan limits to decrease by 6.6% to 14.7%."
Starting on the 29th, for single-dwelling owners, jeonse loans taken out for renting dwellings in the Seoul metropolitan area and regulated zones will be included when calculating DSR. Until now, jeonse loans were excluded from DSR. The Financial Services Commission said, "In light of the impact of this measure on the housing-insecure and other groups, we will first apply it to single-dwelling owners' jeonse loans in the Seoul metropolitan area and regulated zones, and we plan to review phased expansion options while monitoring implementation going forward."
The government will also lower the loan-to-value (LTV) ratio in regulated zones from the current 70% to 40%. Not only will the cap on home mortgage loans be reduced, but limits will also apply to jeonse and unsecured loans. Borrowers holding more than 100 million won in unsecured loans will be restricted from purchasing dwellings in regulated zones for one year from the loan execution date. It will also be impossible for a borrower with a jeonse loan to acquire a dwelling priced over 300 million won in a regulated zone.
In addition, starting in January next year, to discourage banks from issuing home mortgage loans, the lower bound of risk weights will be raised from the current 15% to 20%. Banks calculate risk-weighted assets by applying different risk weights by loan; the higher the risk-weighted assets, the lower the Bank for International Settlements (BIS) capital adequacy ratio. Banks, which must maintain a BIS capital ratio of at least the financial authorities' recommended 13%, will have to accumulate that much more capital as risk-weighted assets increase, making them reluctant to handle loans with higher risk weights.
The Financial Services Commission said, "We will prepare transitional provisions for borrowers who signed dwelling sales contracts or jeonse contracts, or whose loan applications were completed, before this measure takes effect," adding, "We will operate the system carefully to ensure that no unforeseen damage occurs to end users."