[Loan Regulation Tightening] Government Raises Housing Prices... While Removing Financial Support

Apartments in downtown Seoul as seen from Namsan Park, Seoul on the 28th

It is expected to become even more difficult for first-time homebuyers and non-homeowners to secure their own homes. The government is tightening loan regulations as part of measures to stabilize household debt and housing prices. Experts point out that the introduction of loan-to-value (LTV) and debt service ratio (DSR) regulations on non-residential properties such as land, commercial buildings, and officetels will inevitably impact the related markets.

According to the government's "Household Debt Management Plan" announced on the 29th, starting from July, borrowers taking out new loans secured by homes valued over 600 million KRW in all regulated areas (speculative zones, speculative overheating zones, and adjusted target areas) will be subject to a personal DSR limit of 40%.

With the implementation of the personal DSR, the amount of loan available will significantly decrease mainly for low-income borrowers rather than high-income ones. High-income individuals have already faced loan limits due to existing LTV regulations, so the impact is minimal. However, for low-income borrowers, the new 40% DSR rule will substantially reduce their borrowing capacity. For example, if Mr. A, with an annual income of 20 million KRW and no other loans, takes out a mortgage loan (20-year term, 2.5% annual interest rate, principal and interest repayment), the current maximum loan amount is 220 million KRW, but with the 40% personal DSR applied, it will be limited to 126 million KRW.

Professor Seo Jin-hyung of Gyeongin Women's University said, "Due to the strengthened DSR loan regulations, those lacking financial capacity can no longer climb the financial ladder. While loan regulations are effective policies for stabilizing real estate prices, they should be improved to apply differentially so that non-homeowner actual demanders are not adversely affected."

Concerns have also been raised that speculative demand may surge as people rush to secure loans before the new regulations take full effect, potentially destabilizing the housing market in the short term. Lim Byung-chul, senior researcher at Real Estate 114, said, "Existing loan regulations are already strict, making transactions of high-priced homes difficult. However, since the expectation of capital gains is not significant, the possibility of a long-term price surge appears low."

Investor activities in land, commercial buildings, and officetel sectors are also expected to be restricted. The government plans to expand the 70% LTV regulation on non-residential mortgage loans, currently applied only to mutual finance institutions, to all financial institutions starting from the 17th of next month. Cho Hyun-taek, a researcher at the Commercial Building Information Research Institute, said, "Lowering the LTV means investors need to increase their equity ratio, and since properties like commercial buildings and land have high purchase prices, stricter loan regulations will likely reduce transaction activity compared to before."

In particular, from July, a 40% LTV regulation will apply to new non-residential mortgage loans in land transaction permission zones. Researcher Cho pointed out, "Considering that popular officetels are concentrated in land transaction permission zones such as Gangnam and Seocho districts, the officetel market is also expected to contract somewhat. There is also a possibility of short-term price fluctuations due to demand trying to purchase in advance while loans are still available."

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