Starting from the 28th, when purchasing dwellings in the metropolitan area and regulated areas, the maximum amount of housing mortgage loans (dwellings loans) will be limited to 600 million won. Homeowners in this area will not be able to obtain additional mortgages for the purpose of buying more dwellings.
With the average sales price of apartments in Seoul exceeding 1.3 billion won, limiting the loan cap may lead to a situation where only cash-rich individuals can purchase dwellings.
On the 27th, the government held an emergency household debt review meeting chaired by Secretary-General Kwon Dae-young of the Financial Services Commission and prepared measures to strengthen household debt management. The government plans to reduce the total household loan (excluding policy loans) target by 50% from the original plan starting in the second half of this year and to cut the annual supply plan for policy loans by 25%.
The government has decided to initially limit the maximum cap for dwellings loans in the metropolitan and regulated areas to 600 million won. This is to restrict excessive borrowing for the purchase of high-priced dwellings. Mid-term loans are excluded.
Shin Jin-chang, head of the Financial Policy Bureau at the Financial Services Commission, noted during a briefing that, assuming a loan of 600 million won is taken out for a term of 30 years, the monthly repayment amount (principal + interest) would be around 3 million won. He added that this amount is burdensome compared to the average household income and that they set the limit of 600 million won based on what is considered a reasonable level of liability relative to income.
Considering that the current loan-to-value ratio (LTV) for regulated areas is 50%, a dwellings loan can be obtained up to the existing limit for dwellings worth 1.2 billion won. The Financial Services Commission explained that when the total debt service ratio (DSR) stage 3 takes effect in July, the loan limit may be further reduced.
The Moon Jae-in administration completely banned dwellings loans for apartments exceeding 1.5 billion won in speculative areas like Seoul in December 2019. At that time, it was criticized as a regulation that allowed only cash-rich individuals to buy homes. The restriction on the 600 million won dwellings loan limit under the Lee Jae-myung administration is also likely to attract criticism that it is advantageous only for cash-rich individuals.
In the metropolitan and regulated areas, homeowners with two or more dwellings are prohibited from purchasing additional dwellings, and single homeowners are also prohibited from buying an additional dwelling without disposing of their existing one. If a single homeowner disposes of their existing dwelling within six months, they will be treated the same as non-homeowners, applying a 70% LTV in non-regulated areas and a 50% LTV in regulated areas.
Household stability fund loans for dwellings in the metropolitan and regulated areas are limited to 100 million won. Homeowners with multiple dwellings cannot take these loans either. Additionally, the LTV for first-time homebuyer dwellings loans in this area will be reduced from the current 80% to 70%, and a requirement to move in within six months will also be imposed. This regulation will similarly apply to other policy loans such as the stepping stone and home mortgage loans. Conditional transfer loans for jeonse in this area will also be prohibited. Financial institutions should not grant loans if the landlord and the owner of the rented dwellings are different in the lease contract when assessing jeonse loans.
It has been decided to limit the credit loan limit to each borrower's annual income to restrict the use of credit loans for purchasing dwellings.