Loan Cases Vary Greatly and Exception Applications Are Complex... Only Banks Are Confused

Aftermath of Ad Hoc Loan Regulations... Financial Authorities Release Explanation Materials at 9 PM
Commercial Banks Demand Guidelines

[Asia Economy Reporter Kangwook Cho] The aftermath of the '6.17 Real Estate Measures,' which include stringent loan regulations, is intensifying. As real demand buyers continue to suffer damages, public petitions demanding revisions have been raised, exacerbating market confusion. In response, the government announced supplementary measures on the 22nd, just four days after the announcement, including exceptions related to restrictions on jeonse loans. Additionally, on the following day, the 23rd, they distributed additional data concerning the Loan-to-Value ratio (LTV) for mortgage loans. However, criticism over these measures being mere 'band-aid solutions' is growing, and as customer complaints flood in, commercial banks have also begun demanding the financial authorities establish clear guidelines.

According to financial circles and financial authorities on the 24th, the Financial Services Commission and the Ministry of Land, Infrastructure and Transport have recently distributed press reference materials for two consecutive days, explaining the regulatory contents and exceptions following the '6.17 Real Estate Measures,' and even clarifying factual matters.

In particular, on the previous day, well past 9 p.m., they released a press reference titled 'Regarding LTV Application for Group Loans on Pre-sale Housing in Newly Regulated Areas.' This was due to growing concerns that the LTV application standards for group loans on pre-sale housing in areas newly designated as regulated might change.

According to the materials, in areas newly designated as regulated from non-regulated areas, the same LTV standards as before will apply. However, as before, this is limited to one-household owners without a home or those who have signed a disposal condition agreement. In such cases, if the subscription was won or the deposit payment was completed before June 19, the effective date of the new regulation designation, the LTV of 70% for non-regulated areas will apply to interim payment loans as before. For balance payment loans, LTV regulations applied to adjusted areas and speculative overheating districts will apply, but considering the expected benefits of the units already subscribed, the previous LTV can be applied within the scope of interim payment loans received. According to current LTV regulations, in adjusted areas and speculative overheating districts, 50% and 40% apply respectively for amounts up to KRW 900 million, and 30% and 20% apply for amounts exceeding KRW 900 million.

On the 22nd, a day earlier, the government sought to ease controversy over the 6.17 jeonse loan restrictions through six case examples. This was explained as an effort to clarify misunderstandings or incorrect reports regarding regulatory contents, exceptions, and application cases related to recent jeonse loan restrictions. The material stated that if a house purchased for less than KRW 300 million exceeds KRW 300 million due to price increases, it is not considered 'purchasing an apartment exceeding KRW 300 million,' so extension of jeonse loans is possible. It also explained that inheriting an apartment exceeding KRW 300 million is not considered a 'purchase' and thus is not subject to regulation.

However, despite the government's repeated distribution of explanatory materials, the variety of cases and complexity of exception applications have not alleviated confusion among commercial banks. Accordingly, the banking sector has recently begun consultations with financial authorities to prepare specific and accurate guidelines regarding this measure. Bank officials have requested interpretations of specific application cases of the 6.17 measures. They also asked for clear boundaries to prevent customer complaints from returning to banks in the form of grievances. It is reported that opinions diverged among bank practitioners during meetings regarding the scope and timing of the additional regulations.

The contentious issue is how to apply existing agreements when refinancing interim payment loans in areas newly designated as speculative overheating districts. The government stated that 'when purchasing a house with a mortgage loan in a regulated area, the house must be disposed of within six months,' but there is controversy over whether this agreement must be renewed according to the designation of the regulated area if refinancing occurs without an increase or change by the bank. Also, the exception to the move-in deadline for actual residence purposes when purchasing a house in a regulated area is problematic. For example, if a non-homeowner purchases a house in a regulated area with more than one year remaining on the jeonse lease, and can only move in after the lease expiration, questions arise as to whether this can be considered an unavoidable reason. The financial authorities plan to finalize their response and deliver it to the banking sector soon.

A financial sector official said, "Because this real estate measure is so complex, even loan officers often find it difficult to explain to customers," adding, "The government has announced measures without fully reviewing market conditions or impacts and continues to apply band-aid solutions, causing inconvenience to real demand buyers."

This content was produced with the assistance of AI translation services.