Getting Home Loans Easier... LTV Expanded to 80%

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] # Office worker A is planning to purchase a home ahead of their wedding at the end of this year. A holds about 100 million KRW as a first-time homebuyer and plans to buy a 500 million KRW apartment in the outskirts of Seoul. However, since the loan-to-value ratio (LTV) applied was 60%, allowing only a 300 million KRW loan, A had been postponing the purchase. With the government’s decision to ease the LTV to 80% for first-time homebuyers in the third quarter, a 400 million KRW loan will be possible, and A plans to proceed with the home purchase in the second half of the year.

The government will ease the LTV to 80% for first-time homebuyers to stabilize housing for low-income households, expand the reflection of future income in the debt service ratio (DSR) calculation, and launch mortgages with terms up to 50 years for youth and newlyweds.

These measures were included in the “Emergency Livelihood Stabilization 10-Point Project” announced by the government on the 30th. Considering the increasing housing cost burden and the fact that demand management regulations have intensified the burden on actual homebuyers, the government plans to improve financial accessibility through easing LTV and other measures.

First, to support the housing ladder for first-time homebuyers, the LTV regulation, which was applied at 60-70% depending on the region and housing price, will be eased up to 80%. This is expected to expand homeownership opportunities for youth and newlyweds. Currently, the LTV cap is 40% in speculative and overheated speculation areas, and 50% in regulated areas. First-time homebuyer households receive an additional preferential cap of up to 20 percentage points.

The government expects that this LTV easing will normalize loan regulations that were introduced amid rapid short-term housing price increases and support the formation of a housing ladder for actual buyers.

Along with this, the reflection of future income in DSR calculations will be expanded. The government plans to improve the DSR reflection guidelines introduced in July last year to more accurately reflect future income when handling loans for youth. Although future income can currently be reflected in DSR calculations, it is rarely utilized in practice; thus, the government plans to expand the reflection scope and encourage active use. This is expected to increase loan limits for youth, whose repayment capacity tends to be underestimated when calculated based on current income.

Improving the future income calculation method to reflect actual income flow

Additionally, a 50-year ultra-long-term mortgage will be introduced. The longest maturity for existing Bogeumjari loans and qualified loans was 40 years, introduced last July exclusively for youth and newlyweds. Considering the overall rise in housing prices and the onset of interest rate hikes, the government decided to introduce a 50-year ultra-long-term maturity for policy mortgages. The introduction of a 50-year mortgage is expected to reduce the principal and interest repayment burden for youth purchasing homes. For example, if a person under 39 years old or a newlywed within 7 years borrows 500 million KRW at an interest rate of 4.4%, the monthly repayment is 2.22 million KRW for a 40-year term but decreases to 2.06 million KRW for a 50-year term, reducing interest burden by about 7%.

The government plans to implement the LTV cap easing to 80% for first-time homebuyer households and the expanded reflection of future income in DSR calculations in the third quarter, and to launch the 50-year mortgage for youth and newlyweds in August.

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