From Next Month 1st, 80% LTV Cap Applied to First-Time Home Buyers

[Asia Economy Reporter Song Hwajeong] Starting from the 1st of next month, the loan-to-value ratio (LTV) for first-time homebuyers will be eased from 60-70% to 80%, and the deadline for disposing of existing homes when taking out mortgage loans in regulated areas will be extended from 6 months to 2 years.

On the 20th, the Financial Services Commission approved amendments to the supervisory regulations for banking, specialized credit finance, mutual finance, insurance, and mutual savings banks to rationally improve loan regulations in order to resolve difficulties faced by real demanders in purchasing homes amid strengthened household debt management. The amendments reflect the new government's previously announced plan to normalize loan regulations.

First, first-time homebuyers will be subject to an LTV cap of 80%, regardless of the location or price of the home. The maximum loan limit is 600 million KRW. Previously, first-time homebuyers in speculative or overheated speculative districts (homes priced up to 900 million KRW) were subject to an LTV of 50-60%, and in adjusted areas (homes priced up to 800 million KRW), 60-70%, with a maximum loan limit of 400 million KRW.

The obligation to dispose of existing homes and move into new homes when taking out mortgage loans in regulated areas will also be eased. Currently, when taking out a mortgage loan for purchasing a home in a regulated area, the existing home must be disposed of within 6 months, and there is an obligation to move into the new home. According to the amendment, the deadline for disposing of the existing home will be extended from 6 months to 2 years, and the obligation to move into the new home will be abolished. The amendment applies to borrowers who enter into mortgage loan agreements after the effective date. However, if a borrower entered into a mid-term payment loan agreement before the effective date and agreed to dispose of the existing home within 6 months from the date of ownership transfer registration after the new home’s completion, and then enters into a balance payment loan agreement after the effective date, the eased regulations will apply.

The loan limit for mortgage loans for living stabilization funds will also be increased. Currently, the loan limit for living stabilization funds secured by an owned home is limited to 100 million KRW per year, but under the amendment, the limit will be raised to 200 million KRW. The loan limit for emergency livelihood mortgage loans, which are exempt from the debt service ratio (DSR) application, will also be expanded from 100 million KRW to 150 million KRW.

The amendment also reflects several issues requiring supplementation, such as numerous complaints and inconveniences for real demanders. Accordingly, exceptional extensions of the existing home disposal deadline will be allowed. Currently, no exceptions are recognized for the disposal deadline, but in the future, unavoidable cases may be approved by the credit review committee to extend the deadline. Unavoidable cases include natural disasters, industrial accidents, and cases where the existing home is located in a public redevelopment area, making it difficult to dispose of the home within the period. Additionally, the amendment specifies that when a non-homeowner child who has not separated their household moves out, they may be exempt from disposing of the existing home registered under the parents’ name.

Balance payment loans within the mid-term payment loan range will be allowed even if the market price exceeds 1.5 billion KRW after completion. Currently, it is difficult to handle moving and mid-term payment loans for projects expected to exceed 1.5 billion KRW in market price after completion, but under the amendment, balance payment loans will be exceptionally allowed within the remaining balance of moving and mid-term payment loans for purchasers even if the market price exceeds 1.5 billion KRW after completion.

For multi-home purchasers who acquired mid-term payment loans before the designation of regulated areas, balance payment loans within the mid-term payment loan range will be allowed regardless of whether the same financial institution is involved. Currently, multi-home purchasers who received mid-term payment loans before the designation of regulated areas must obtain balance payment loans from the same financial institution that handled the mid-term payment loan after the designation; otherwise, they must repay the mid-term payment loan if the institution does not handle balance payment loans.

Previously, due to the prohibition of mortgage loans for housing rental and sales businesses, it was difficult to refinance existing mortgage loans without increasing the amount, but under the amendment, refinancing without increasing the amount of existing mortgage loans will be exceptionally allowed. Also, for projects announced before the regulation enforcement, loan regulations at the time of sale will apply, allowing balance payment loans for housing rental and sales businesses.

The scope of corporate loans allowed for businesses other than housing rental and sales will be expanded to include mortgage loans secured by housing-related revenue securities. Previously, loans in regulated areas were prohibited for businesses other than housing rental and sales if the collateral was housing-related revenue securities, even if the purpose was for corporate activities. Under the amendment, mortgage loans secured by housing-related revenue securities will be allowed for businesses other than housing rental and sales if the purpose is not to purchase homes in regulated areas. Income aggregation of spouses holding mortgage loans will be allowed when calculating debt-to-income ratio (DTI) and DSR. Previously, income and debt aggregation was only possible if the spouse did not have a mortgage loan.

The approved amendments to the supervisory regulations will take effect from the 1st of next month. Matters such as non-mortgage loan LTV at 70%, expansion of borrower-level DSR, and prohibition of home purchases when handling high-value credit loans will be formalized after consultation with the Regulatory Reform Committee and are expected to be codified by the end of August.

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