"Trying to Curb Speculation, But Blocking First-Time Buyers"... Mortgage Limits in Gangbuk, Gwanak, and Guro Decrease More Than in Hangang Belt [Real Estate AtoZ]

LTV 40% Rule Hits Mid- to Low-Priced Apartments in Outer Seoul
Gwanak, Gangbuk, and Guro Suffer Larger Loan Reductions Than Mapo, Seongdong, and Gwangjin
Critics Say Government Ignored Actual Homebuyers in the Name of Preventing the "Balloon Eff

The amount available for mortgage loans in the outer districts of Seoul, such as Gangbuk, Gwanak, and Guro-areas with high real demand-has decreased more than in districts where housing prices have surged, like Mapo, Seongdong, Gwangjin, and Gangdong. This is the result of the government’s October 15 real estate measures, which designated the entire city of Seoul as a regulated area. With the loan-to-value (LTV) ratio lowered from the previous 70% to 40%, outer districts with a concentration of mid- to lower-priced apartments around 1 billion won have been hit harder. Critics argue that regulations intended to curb speculation have instead blocked first-time homebuyers from entering the Seoul housing market.

Yonhap News Agency

According to a simulation conducted on October 17 using 7,420 actual apartment transactions in Seoul registered on the Ministry of Land, Infrastructure and Transport’s real transaction price system for September, the average mortgage loan limit for apartments in Seoul before the new measures was 536.82 million won. After the measures, this figure dropped to 365.88 million won, a decrease of about 170.94 million won on average.

These figures are based on the following: before the measures, regulated areas applied an LTV of 40% (with a 600 million won cap), while non-regulated areas applied an LTV of 70% (also with a 600 million won cap). After the measures, the amount available was calculated by applying an LTV of 40% with differentiated caps: up to 600 million won for apartments priced at 1.5 billion won or less, up to 400 million won for those between 1.5 billion and 2.5 billion won, and up to 200 million won for those over 2.5 billion won. According to the Ministry of Land, Infrastructure and Transport, when purchasing a 1 billion won apartment in Seoul, the lower of 40% LTV (400 million won) or the 600 million won cap is applied as the loan limit.

By district, Gangnam saw the largest reduction in mortgage loan limits, dropping from 548.1 million won to 326.98 million won-a decrease of 221.12 million won. Seocho also saw a reduction of over 200 million won, from 520.96 million won to 302.14 million won (a decrease of 218.82 million won). The sharpest declines occurred in Gangnam and Seocho, where high-priced homes are concentrated, due to the strengthened regulations on loans for properties over 1.5 billion won.

However, contrary to expectations, the decrease was also significant in outer districts. In Gwanak (down 188.72 million won), Gangbuk (down 186.06 million won), Guro (down 181.34 million won), Jungnang (down 177.64 million won), and Eunpyeong (down 174.32 million won), the reduction in loan limits was greater than the Seoul average (down 170.94 million won).

These outer districts are now eligible for even less in loans than areas where housing prices have surged. In so-called "Hangang Belt" districts like Mapo (down 165.22 million won), Seongdong (down 168.87 million won), Gwangjin (down 153.83 million won), Gangdong (down 168.43 million won), Yeongdeungpo (down 169.7 million won), and Dongjak (down 157.8 million won), the reduction in loan limits was relatively smaller.

This is the result of applying uniform regulations citywide to prevent the so-called "balloon effect." For example, the maximum loan for a 1 billion won apartment has been reduced from 600 million won to 400 million won. However, for a 1.5 billion won apartment, the maximum loan remains at 600 million won. Gwanak, Gangbuk, Guro, Jungnang, and Eunpyeong are all districts where the average apartment price is less than 1 billion won. In contrast, in Hangang Belt districts like Mapo, Seongdong, and Gwangjin, there are many transactions for apartments that can still receive loans of up to nearly 600 million won. In Mapo, for example, 45.3% (210 out of 463) of last month’s transactions were for apartments priced between 1 billion and 1.5 billion won.

Kim Hakryeol, head of Smart Tube Real Estate Research Institute, said, "In high-priced districts, the proportion of cash buyers is high, so loan restrictions have little impact. But in outer districts, the market operates on the assumption of 'full loans,' so the impact is severe. The government was aware that loan limits in these districts would decrease even more than in the Hangang Belt, but the policy reflects a strong will to disregard the damage to outer districts." He added, "While aiming to curb speculation, the government has ended up blocking first-time homebuyers and low-income residents from entering Seoul, starting with the outer districts."

With differentiated loan limits, some predict that transactions for apartments priced at 1.5 billion won or less will become more active. There is also an expectation that apartments priced between 1 billion and 1.5 billion won, where loan limits are relatively higher, will see "price matching" to hit the 1.5 billion won mark. Ham Youngjin, head of Woori Bank’s Real Estate Research Lab, said, "Some real demand will shift to apartments priced at 1.5 billion won or less. With relatively more liquidity available, there is a possibility of price matching around the 1.5 billion won threshold."