What Good Is 80% LTV? Low-Income Youth Have No Ladder to Climb

Despite LTV 80% Relaxation Policy, Public Opinion Remains Lukewarm
Low-Income Youth Receive No LTV Benefits Due to DSR Regulations
Reflecting Future Income Widens Loan Amount Gap Between High Earners
"Only a Few Dual-Income High-Income Couples Will Have a Chance to Own a Home"

The 'transaction cliff' phenomenon in the housing market is intensifying due to the burden of soaring house prices and the impact of loan regulations by financial authorities. Although the peak moving season in autumn has officially begun after Chuseok, the number of sales transactions is sharply declining as fewer people are willing to buy homes. The photo shows a real estate agency in Seoul on the 19th. Photo by Kim Hyun-min kimhyun81@

"Even if they loosen the Loan-to-Value ratio (LTV) to 80%, what’s the point when the Debt Service Ratio (DSR) is capped at 40%?"

"This policy is for high-income earners who couldn’t get loans because of LTV restrictions, but it’s useless for low-income earners."

(Real estate-related community on a portal site)

The Yoon Suk-yeol administration fulfilled its campaign promise made during the presidential election to "raise the LTV to 80% for first-time homebuyers regardless of the location or price of the house," but public reaction remains lukewarm. Even if people decide to buy a house amid plummeting housing market sentiment, for low-income earners, owning a home 'in Seoul' is still a distant dream. The 'asset-building ladder' that low-income, homeless youth could climb is broken and left unattended.

Only High-Income Youth See Increase in Loan Amounts

On the 3rd, a commercial bank simulated a case where a 29-year-old youth with different annual incomes (30 million, 50 million, 70 million KRW) takes out a loan (at an annual interest rate of 4.30%) to purchase a 900 million KRW apartment in a speculative zone in Seoul. The results show that applying the 'LTV 80% relaxation' yields loanable amounts by income level as follows: ▲202 million KRW (annual income 30 million KRW) ▲336 million KRW (annual income 50 million KRW) ▲471 million KRW (annual income 70 million KRW).

Because of the 'DSR 40%' rule, which limits the annual principal and interest repayment to 40% or less of annual income when the total loan amount exceeds 100 million KRW, low-income earners face limits in feeling the benefits of LTV relaxation. Until now, for first-time buyers, an LTV of 50-60% was applied to homes priced under 900 million KRW in speculative or overheated speculation zones. While the increase to 80% has allowed high-income earners to borrow more from banks, low-income earners’ loanable amounts remain unchanged before and after the LTV relaxation.

Furthermore, as financial authorities decided to reflect expected future income for youth, the gap in loanable amounts between low- and high-income earners has widened further. When both 'LTV 80% relaxation' and 'expected future income' are applied simultaneously, the loanable amounts are ▲265 million KRW (annual income 30 million KRW) ▲442 million KRW (annual income 50 million KRW) ▲600 million KRW (annual income 70 million KRW).

The 'transaction cliff' phenomenon in the housing market is intensifying due to the burden of soaring house prices and the impact of loan regulations by financial authorities. Although the peak moving season in autumn has officially started after Chuseok, the number of sales transactions is sharply declining as fewer people are willing to buy houses. The photo shows listings posted at a real estate agency in Seoul on the 19th. Photo by Hyunmin Kim kimhyun81@

Gap Widens Even More When Future Income Is Reflected

The difference between 30 million KRW and 70 million KRW annual incomes when only 'LTV 80%' is applied is 269 million KRW, but when the effect of reflecting 'expected future income' is added, the gap widens significantly to 335 million KRW. This means that low-income youth living in Seoul will find it difficult to escape renting from others unless they move to the metropolitan area or provinces.

High-income earners also face their own challenges. The Financial Services Commission capped the mortgage loan limit at 600 million KRW even while relaxing the LTV to 80%. According to the DSR 40% rule, even high-income earners who could borrow more than 600 million KRW can only borrow up to 600 million KRW. For a youth earning 70 million KRW annually, applying both 'LTV 80% relaxation' and 'expected future income' would originally allow borrowing up to 619 million KRW, but the loanable amount is capped at 600 million KRW for this reason.

A representative from a commercial bank said, "Low-income earners are blocked by the DSR regulation, so their loanable amounts do not increase significantly, and high-income earners face a loan cap, so the LTV 80% relaxation policy ends up being just for show," adding, "Only a small number of high-income dual-income couples can seize the opportunity to own a home through this measure."

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