The government said it will not apply the tightened loan-to-value ratio (LTV, the ratio of a loan to home price) when buying a home with a policy loan, even if the home is in a regulated area. It will keep the LTV at 70% to prevent loan limits from shrinking. But in the Seoul metropolitan area, finding a "homes priced at 600 million won or less" that meet policy loan conditions has itself become difficult, drawing criticism that this is a patchwork measure. In Seoul this year, dwellings priced at 600 million won or less accounted for only a little over 10% of transactions.
According to the Financial Services Commission on Oct. 18, the Didimdol Loan supplied by the housing & urban fund will keep the LTV at 70% regardless of whether the area is regulated. For the Korea Housing Finance Corporation's Bogeumjari Loan, the LTV will be lowered from 70% to 60% (55% for non-apartments), but first-time homebuyers and end users will still have an LTV of 70% applied.
On Oct. 15, the government designated all of Seoul and 12 areas in Gyeonggi Province as regulated areas and tightened the LTV in those areas from 70% to 40%. Without the exception, assuming a purchase of a 600 million won apartment at market price, the policy loan limit would have fallen from 420 million won to 240 million won.
The common point of the Didimdol Loan and the Bogeumjari Loan is that applications are only possible if the home price is below a certain level. The Didimdol Loan is capped at 500 million won (600 million won for newlyweds and multi-child households), and the Bogeumjari Loan is limited to up to 600 million won.
The problem is that it is hard to find dwellings priced at 600 million won or less in regulated areas. An analysis by real estate brokerage ZipToss of actual apartment sales prices in Seoul showed that apartments at 600 million won or less accounted for 15.8% through September this year. In 2015, the first year after the Didimdol Loan was launched, apartments at 600 million won or less made up 80.5% of transactions. Narrowing the condition to "exclusive area of at least 50 square meters," the minimum residential area for newlyweds, the share of transactions at 600 million won or less fell from 78% in 2015 to 9.2% in 2025.
In the end, buyers have little choice but to look at dwellings priced above 600 million won, but then the LTV is tightened to 40%, reducing loan limits. If buying an apartment with a market price of 900 million won, in principle the loan would be capped at 360 million won. Even then, it is uncertain whether the borrower can get the full amount. That is because the debt service ratio (DSR), which prevents annual principal and interest payments from exceeding annual income, applies at the same time.
Assuming there is no existing debt, the maximum limit for a home mortgage loan (4.0% interest, 30-year maturity, equal principal and interest) that a borrower with an annual income of 50 million won can take is 325 million won. On top of that, the "stress rate (additional rate)" added to regulated-area mortgage rates rises, lowering the loan limit to as little as 251 million won.
A financial industry official said, "When the Didimdol Loan was first launched, the home price requirement was also capped at 600 million won, and it has stayed there for 10 years," adding, "In the Seoul metropolitan area, there are no homes you can buy with a policy loan, so I don't know what the point of the LTV exception is."