"High Earners with Annual Income Over 100 Million Won Unlikely to Be Greatly Affected by Loan Regulations"

Annual Income Threshold of 104 Million Won to Max Out LTV While Maintaining 100 Million Won Credit Line
Borrowers with Annual Income of 104 Million Won Can Still Get the Same Mortgage Loan Until July This Year and After July Next Year

[Asia Economy Reporter Kiho Sung] As the government gradually introduces measures to strengthen household loan regulations, an analysis has emerged that although more than 80% of all apartments in Seoul are subject to regulation, high-income earners with an annual income exceeding 100 million KRW are unlikely to be significantly affected.

On the 29th of last month, the government announced a household debt management plan that applies the Debt Service Ratio (DSR) regulation, which was previously only applied to speculative overheated districts for homes priced over 900 million KRW, to all regulated areas for home purchases exceeding 600 million KRW.

According to the financial sector on the 2nd, simulation results show that a borrower with an annual income of 200 million KRW and a 100 million KRW overdraft account (a credit loan with a limit) who takes out a mortgage loan using a 1 billion KRW apartment in a regulated area as collateral can receive the maximum mortgage loan limit of 380 million KRW under the Loan-to-Value (LTV) ratio (40% for amounts up to 900 million KRW and 20% for amounts exceeding 900 million KRW) whether before or after July this year, or after July next year. The overdraft interest rate was assumed to be 3% per annum, and the mortgage loan interest rate and installment repayment period (equal principal and interest method) were assumed to be 2.7% per annum and 30 years, respectively.

For high-income earners, this means they can fully leverage the current LTV limit without reducing or canceling their 100 million KRW overdraft account, effectively "pulling together all resources" (Yeongkkeul).

This contrasts with borrowers with credit loans under 100 million KRW in income, many of whom will face reduced mortgage loan limits or need to reduce credit loans to receive full mortgage loans due to the application of a personal 'DSR 40%' from July this year and the shortening of the repayment period for overdraft accounts (credit loans) from the current 10 years to 7 years in July this year and 5 years in July next year.

The estimated minimum annual income threshold to maintain a 100 million KRW overdraft account and fully utilize the LTV limit without being affected by the strengthened loan regulations is 104 million KRW. Borrowers with an annual income of 104 million KRW can also receive the same 380 million KRW mortgage loan before July this year and after July next year.

However, if the apartment price is raised to the upper limit for mortgage loans in regulated areas, 1.5 billion KRW, the annual income threshold for borrowers who can still fully leverage their loans without changes rises slightly to 116 million KRW. These borrowers are expected to continue to receive mortgage loans up to 480 million KRW even after the regulatory changes without touching their overdraft accounts.

An official from a commercial bank explained, "In the case of mortgage loans, since the spouse’s income without loans can be combined in the DSR calculation, many households with an annual income exceeding 100 million KRW may not be significantly affected by this loan regulation compared to middle- and low-income households."

He added, "When receiving a mortgage loan while having a credit loan, the spouse’s income can be combined in the DSR calculation, but if the mortgage loan is taken first and the credit loan later, combining incomes is not possible. Therefore, if planning to borrow, it is better to take the credit loan first."

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