From December, LTV in regulated areas raised to 50%... 70% for low-income and genuine buyers (Comprehensive)

You Can Get a Mortgage Loan When Buying an Apartment Over 1.5 Billion Won

[Asia Economy Reporter Sim Nayoung] Starting from the 1st of next month, non-homeowners and one-homeowners (conditional on disposing of their existing home) in regulated areas will be able to borrow up to 50% of the house price. It will also be possible to obtain mortgage loans when purchasing apartments priced over 1.5 billion KRW in speculative and speculative overheated districts. For low-income or genuine buyers purchasing homes within regulated areas, banks will lend up to 70% of the house price, with a maximum limit of 600 million KRW.

Real Estate Regulation Eased... Encouraging Home Buying but

The Financial Services Commission announced on the 10th, during the 3rd Real Estate Ministers' Meeting, that it has issued a notice of regulatory changes for supervisory regulations across various sectors to implement the announced measures. First, the Loan-to-Value ratio (LTV), which had been differentiated by region and housing price within regulated areas, will be relaxed. Until now, non-homeowners and one-homeowners (conditional on disposing of existing homes) had LTVs ranging from 20% to 50% depending on housing prices within regulated areas. The financial authorities plan to uniformly relax this to an LTV of 50%. However, multi-homeowners will maintain the current LTV conditions.

The mortgage loan limit for low-income and genuine buyers will be expanded from 400 million KRW to 600 million KRW. The LTV will be allowed up to 70%. The conditions are ▲ combined annual household income of 90 million KRW or less ▲ housing price in speculative or overheated areas of 900 million KRW or less (800 million KRW or less in adjusted target areas) ▲ and meeting all requirements such as being a non-homeowner household head.

Interest Rates Keep Rising, DSR Regulations... Lukewarm Response

Despite the government's easing of real estate financial regulations, the market response remains lukewarm. This is because mortgage interest rates at commercial banks have exceeded 7% annually, increasing interest burdens, and the real estate market forecasts predict a continued decline in house prices, resulting in a lack of transactions.

For example, to purchase a 1.5 billion KRW apartment with an LTV cap of 50%, a loan of 750 million KRW (30-year term, equal principal and interest payments, annual interest rate of 5%) would require monthly repayments of 4.02 million KRW. If the interest rate rises to 6%, the monthly repayment becomes 4.49 million KRW, and at 7%, it increases to 4.99 million KRW. The financial sector widely expects the base interest rate to continue rising in the first half of next year, which is why people are reluctant to buy homes despite the easing of regulations.

There is also the Debt Service Ratio (DSR) regulation, which limits the amount of loans relative to income. No matter how much the financial authorities relax the LTV, if income remains the same, the amount one can borrow from banks remains unchanged. Starting from July this year, if the total loan amount exceeds 100 million KRW, a DSR limit of 40% applies to banks.

A representative from a commercial bank said, "Since loan interest rates have risen significantly, even if regulations are eased, borrowers are not considering taking out loans now, and even if they need to borrow, they must carefully check whether the required loan amount can be approved due to the DSR."

The Bank of Korea raised the base interest rate by 0.5 percentage points, and the real estate transaction market is expected to experience a prolonged winter. On the 13th, a red light was on at a traffic signal near an apartment in downtown Seoul.

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