[Initial Reaction] Government Says It Will Ease Loans to Encourage Home Buying

Young people angry about LH real estate speculation are holding candles. (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] The government will announce a "household debt management plan" this month. While managing the total amount of household loans, the plan is expected to include measures to partially ease loan regulations such as the Loan-to-Value ratio (LTV) and the Debt Service Ratio (DSR) to help young people and the homeless acquire their own homes. Although specific regulatory easing measures are still under discussion among ministries, a likely option is to increase the LTV surcharge rate for the homeless by up to 10 percentage points, raising the maximum loan amount to 70% of the collateral value.

Considering the rise in income levels and housing prices, there is also talk of raising the income and housing price criteria for the homeless to receive LTV benefits. The introduction of a 40-year maturity policy mortgage (housing loan) targeted at young people and newlyweds, as well as reflecting expected future income when calculating the DSR for young people, are also expected to be pursued. The 40-year policy mortgage, planned for launch in July, will follow the current Bogeumjari Loan requirements, which have a maximum maturity of 30 years. The Bogeumjari Loan allows loans up to 300 million KRW if conditions such as an annual income of 70 million KRW or less and a housing price of 600 million KRW or less are met. Extending the maturity reduces the monthly principal and interest repayment burden. For a 300 million KRW loan with a 2.5% interest rate under the 40-year policy mortgage, the monthly repayment amount is 990,000 KRW, which is 200,000 KRW (16.1%) less than the 1,190,000 KRW for a 30-year maturity. The government is conducting simulations on various measures. This easing trend could act as a catalyst that fuels the real estate market.

According to the Korea Real Estate Board, as of the 5th, the Seoul apartment sales supply-demand index recorded 96.1, falling below 100. This is the first time in 19 weeks since November 23 last year (99.8) that the Seoul apartment sales supply-demand index has dropped below 100. Above all, if loan regulations are eased, the government may fail to achieve its goal of reducing the annual household debt growth rate, which soared to 8% after the COVID-19 pandemic, back to the pre-COVID-19 level of 4%. The government recently set a plan to halve the household debt growth rate, currently in the 8% range, by next year. The plan is to reduce it to 6-7% this year and then to 4% by next year. The household debt growth rate showed a declining trend from 11.1% in 2016, 8.1% in 2017, 5.9% in 2018, and 4.1% in 2019, but rose to 7.9% last year due to COVID-19.

In fact, it is contradictory to claim to curb the steep increase in household loans while selectively providing more loan benefits to certain generations. The need for home purchases is greater among middle-aged and older adults with dependents, so easing regulations only for young people does not align with the broader trend of financial regulation. Moreover, extending loans based on future income appears to be a political decision aimed at appealing to the youth, who are often critical of the current administration. The government talks about a "housing ladder" for young people, but what young people truly want is not more loans but a decline and stabilization in real estate prices. According to KB Kookmin Bank's Monthly KB Housing Market Trends data, the average apartment sale price in Seoul in March was 1,099.3 million KRW, approaching 1.1 billion KRW. This is about 500 million KRW higher than in May 2017 (670.8 million KRW), shortly after the current administration took office.

In other words, even if young people save their entire salary for 20 years without spending a single won, buying an apartment in Seoul is an unattainable dream. The government is essentially proposing that young people take out more loans and buy homes before it’s too late, but young people are enraged by soaring housing prices and speculation by LH employees. It is hoped that the government will not fuel this anger with misguided policy decisions.

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