Rising Interest Rates and Sale Prices... Is Owning a Home Becoming More Difficult?

BOK Signals Additional Interest Rate Hike

Mortgage Rates May Exceed 8% by Year-End

DSR Phase 3 Regulations Starting Next Month

[Asia Economy Reporter Kim Min-young] As expectations grow that the Bank of Korea (BOK) will implement a 'big step' by raising the base interest rate by 0.5 percentage points at once next month, the financial burden for securing funds to buy a home is expected to increase. Additionally, concerns are rising that it will become even more difficult for non-homeowners to purchase homes due to the Phase 3 Total Debt Service Ratio (DSR) regulations expanding in July and the rise in pre-sale prices following the revision of the price ceiling system for housing sales.

Lee Chang-yong, Governor of the Bank of Korea, announced on the 21st, "We will pursue inflation-focused monetary policy until the inflationary trend subsides," signaling an interest rate hike on July 13. Considering that Governor Lee expects inflation to peak in the third quarter of this year, if rates are raised consecutively through July and August, a scenario of four consecutive rate hikes is possible. The banking sector forecasts that mortgage rates, which have already surpassed 7%, could exceed 8% by the end of this year.

For a medium-sized apartment in Seoul with an exclusive area of 84㎡, the average sale price this year is 1,285.82 million KRW. When borrowing up to the loan-to-value (LTV) limit, the required equity is 848.66 million KRW, and the loan amount is 437.16 million KRW. If this sale price holds until year-end, with an interest rate of 7%, the average monthly repayment would be 2.91 million KRW. This amount exceeds the average income of small and medium-sized enterprise workers (2.59 million KRW), and as interest rates rise, interest costs will also increase, inevitably increasing household financial burdens.

The Phase 3 DSR regulations also make home purchasing more difficult. Starting next month, borrowers with total loans exceeding 100 million KRW who have annual principal and interest repayments exceeding 40% of their annual income (40% for banks, 50% for non-bank institutions) will be unable to obtain additional loans. Currently, this regulation applies only to borrowers with total loans exceeding 200 million KRW. Although the LTV limit for first-time homebuyers has been raised to 80%, since most house prices in Seoul and the metropolitan area exceed 600 million KRW, the effectiveness of this measure is questioned unless accompanied by DSR relaxation.

Rising pre-sale prices may also burden non-homeowners. The government projects that through the revision of the price ceiling system, pre-sale prices could increase by 1.5% to up to 4%. This raises the possibility that general pre-sale prices in major redevelopment areas in Seoul will exceed 900 million KRW. If the general pre-sale price exceeds 900 million KRW, collective loans for interim payments cannot be obtained. Applicants waiting for subscription with insufficient cash liquidity may find their winning bids to be a 'pipe dream' due to funding issues.

Ham Young-jin, Head of the Big Data Lab at Zigbang, said, "In major redevelopment areas in Seoul, demands from real buyers for easing loan restrictions such as the ban on collective loans for interim payments on pre-sale prices exceeding 900 million KRW may increase due to the rise in general pre-sale prices."

Seo Jin-hyung, Co-Representative of the Fair Housing Forum and Professor at Gyeongin Women's University, said, "Due to complex factors such as the peak theory of real estate prices, inflation, and the changed financial market environment, it has become difficult for non-homeowners and real buyers to purchase homes. For first-time buyers and non-homeowners who have the capacity to bear financial costs, loan regulation easing should be implemented to open the path to homeownership."

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