With all of Seoul and 12 areas in Gyeonggi designated as speculative overheating districts and land transaction permission zones, buyers in these areas will be subject to a loan-to-value (LTV) ratio of 40% when purchasing dwellings. The government said buyers can still take out up to 600 million won in mortgage loans for dwellings priced at 1.5 billion won or less under current rules, but applying the 40% LTV means the lower the dwelling price, the smaller the loan, which creates a problem. The policy is expected to draw criticism for raising the threshold for end users to secure dwellings.
The Financial Services Commission held an "emergency household debt review meeting" on the 4th and finalized these real estate lending curbs. Saying instability in the dwellings market has recently been spreading, the government designated all of Seoul and 12 areas in Gyeonggi as speculative overheating districts and land transaction permission zones. The 12 Gyeonggi areas are: ▲ Gwacheon ▲ Gwangmyeong ▲ Suwon's Yeongtong, Jangan, and Paldal districts ▲ Seongnam's Bundang, Sujeong, and Jungwon districts ▲ Anyang's Dongan district ▲ Yongin's Suji district ▲ Uiwang ▲ Hanam.
In areas newly designated as regulated this time, the LTV will be reduced to 40% from the previous 70%. This means borrowers can take loans up to 40% of the home price. The LTV rules take effect on the 16th.
The government explained that for dwellings priced at 1.5 billion won or less, borrowers can receive up to 600 million won in mortgages as under current rules. The problem is that in areas designated as regulated, the 40% LTV applies, making it impossible to borrow 600 million won even for apartments priced at 1.5 billion won or less.
If you purchase a 1.5 billion won dwelling, you can borrow 600 million won, and as the dwelling price falls, the loan limit also decreases. For example, if you buy a 1 billion won dwelling in a regulated area, you can borrow only up to 400 million won from a bank.
By tightening the stressed debt service ratio (DSR) within regulated areas, the Financial Services Commission will further reduce loan limits for borrowers with other household loans such as unsecured loans. It raised the stressed rate (additional rate) used in DSR calculations from 1.5–3.0% to "3.0% or higher."
The stressed DSR is a system that reflects future interest rate fluctuation risks in an individual's loan limit. When the stressed DSR is applied, a rise in interest rates increases a borrower's principal and interest payments, reducing the loan limit accordingly. The stressed DSR applies to virtually all household loans at banks and nonbank lenders, including mortgages, unsecured loans, and other loans.
As loan limits for apartments priced at 1.5 billion won or less are reduced, criticism is expected that this deprives end users of "the opportunity to buy a home." This is because even for dwellings priced at 1.5 billion won or less, buyers will need to hold 60% of the price in cash to purchase. However, the policy allowing a 70% LTV for first-time dwelling buyers remains in place.
An official at the financial authorities said, "For dwellings priced at 1 billion won or less, they are mainly purchased by low- and middle-income people, and the government's policy stance is that they should buy dwellings with liabilities they can bear."