[Debt-Ridden Youth] Government and Ruling Party Encouraging Debt... 2030 Generation Driven to the Edge

Ruling Party Urges Buying Homes on Debt... Push to Ease LTV Regulations for Youth
"Reckless Populist Policy" Faces Fierce Criticism
Youth Household Loans Up 17.3% in a Year... Rising Default Risks Amid Interest Rate Hikes

The area around Eunma Apartment in Daechi-dong, Gangnam-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Jin-ho] Concerns are emerging over the ruling Democratic Party's push to ease loan regulations for the 2030 generation burdened with a "debt bomb." This move reverses the government's consistent stance of strengthening regulations to stabilize the household debt exceeding 1,700 trillion won and the real estate market, raising concerns that it could have the adverse effect of increasing debt further.

According to financial and political circles on the 28th, the ruling party unveiled the "Supply, Finance, and Tax Improvement Plan for Housing Market Stability" the day before. The core of this measure is a significant relaxation of the Loan-to-Value ratio (LTV) for the youth. Specifically, an additional 10 percentage points of LTV preferential rate was applied to the non-homeowners, up to a maximum of 20 percentage points. The preferential housing price requirement for the relaxed LTV regulation was raised from the existing 600 million won to 900 million won or less, and the income standard was also raised to a combined annual income of 100 million won or less for couples purchasing their first home in their lifetime.

The ruling party, which has maintained a tough stance on real estate policy, introduced the loan regulation easing measure only for the youth with the intention of restoring the broken housing ladder and helping them realize their dream of owning a home. Kim Jin-pyo, Chair of the Democratic Party's Special Committee on Real Estate, explained, "This is to realize financial regulations for non-homeowners and strengthen housing welfare for actual demanders," adding, "We have relaxed the LTV requirements to an appropriate level to expand support for homeownership for non-homeowners and first-time homebuyers."

However, looking at the surge in household loans among the youth over the past two years, criticism arises that this is a "populist policy without any real measures." There are concerns about whether it is appropriate to ask them to take on more debt to overcome a momentary crisis. Professor Lee Min-hwan of Inha University's Department of Global Finance pointed out, "The anger of the youth seems to stem more from having their hopes for the future taken away rather than from being unable to get loans," adding, "The easing of loan regulations is essentially pushing them to take on more debt."

In fact, according to data calculated by the Bank of Korea based on credit rating agency NICE Information Service, the outstanding household loans of the youth reached 440 trillion won at the end of last year, a 17.3% (65.2 trillion won) surge compared to the end of 2019. According to a survey by the Korea Real Estate Board, one out of every three apartments traded nationwide in the first quarter of this year was purchased by the youth.

Concerns are also raised that if inflation pressure eases and interest rates return to normal levels, the youth burdened with heavy debt could face a chain risk of bankruptcy. A financial sector official said, "The pressure of interest burden due to interest rate hikes will be greatest for the youth, who generally have lower incomes," adding, "It is questionable whether it is appropriate to tell the youth, who already have many loans, to take on more debt to buy a house." This points to the inappropriateness of the timing of the ruling party's loan regulation easing.

Meanwhile, the ruling party plans to hold a high-level party-government consultation on the 30th and announce the final plan as early as next week regarding the confirmed plan announced the day before. It is reported that there are no disagreements from financial authorities regarding the ruling party's confirmed plan. They judge that even if LTV regulations are eased for actual demanders, the risk of insolvency is low because it will be managed within the borrower-level total debt service ratio (DSR) limit. Financial Services Commission Chairman Eun Sung-soo recently told reporters, "There is a great consensus with the party regarding the youth LTV easing, and there are no disagreements."

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