[Reporter’s Notebook] Confusing Loan Relaxation Pledges

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] “Financial authorities are busy tightening household loans, while presidential election candidates are all calling for loan relaxation. I don’t know which tune to dance to.”

As the presidential election approaches and the candidates’ pledges gradually take shape, anxiety in the financial industry is growing. In particular, there are growing concerns about financial pledges being subordinated to real estate issues. Both ruling and opposition candidates are competing to advocate loan relaxation for the sake of ‘real estate stabilization.’ The candidates’ pledges commonly face criticism for lacking effectiveness and realism. Instead of gradual policy improvements, they emphasize bold changes to attract voters’ attention.

A representative example is the policy to ease the Loan-to-Value ratio (LTV). Most candidates are calling for an increase from the current 40-60% to over 70%. Opposition candidate Yoon Seok-yeol announced a real estate pledge as his first campaign promise, pledging to raise the LTV to 80% for newlyweds and young people. Candidate Yoo Seung-min also promised to raise the LTV to 80% for those without homes.

Candidates Choi Jae-hyung and Won Hee-ryong proposed expanding the LTV up to 100% under certain conditions. Although the argument that raising the LTV is necessary for real estate stabilization is gaining some traction, even during the Park Geun-hye administration, which encouraged ‘buying homes with debt,’ the LTV was only 70%.

The ruling party’s situation is not much different. Former Democratic Party leader Lee Nak-yeon advocates a 50-year maturity mortgage loan. Although unrelated to real estate, Gyeonggi Province Governor Lee Jae-myung proposes a ‘basic loan’ of up to 10 million won at an interest rate around 3% per annum?slightly higher than the current preferential rate?for 10 to 20 years. This can also be read as a pledge to expand loans. The Gyeonggi Research Institute, a think tank in Gyeonggi Province, estimates the maximum utilization amount of the basic loan at 196.4 trillion won. This exceeds 10% of the current household debt, which is at a record high of 1,765 trillion won (as of Q1 this year).

Loan policies can be loosened or tightened as needed. However, in the confusing situation ahead of the presidential election, candidates voicing opinions contrary to the authorities should keep in mind that this may only cause confusion among the public.

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