[2·20 Real Estate Measures] Loan Limit in Regulated Areas Reduced from 60% to 50% (Comprehensive)

LTV Over 900 Million Won Applied at 30% to Block Gap Investment
Apartment Loan Limit of 1 Billion Won Reduced from 600 Million to 480 Million Won
Suwon Yeongtong, Gwonseon, Jangan Districts, Anyang Manan District, and Uiwang City Newly Designated

[Image source=Yonhap News]

[Asia Economy Reporter Onyu Lim] Starting March 2, when purchasing an apartment worth 1 billion KRW in regulated areas including Gwacheon, Suwon, and Seongnam, the mortgage loan limit will be significantly reduced from 600 million KRW to 480 million KRW. This move comes as the government has introduced the 'reduction of Loan-to-Value (LTV) ratio within regulated areas' card to block the balloon effect.

◆ LTV uniformly 60% → differentiated application of 50% for under 900 million KRW, 30% for over 900 million KRW = The government recently announced real estate measures containing these details to block speculative demand in the Seoul metropolitan area where housing prices have surged rapidly. Additionally, the government decided to newly designate Yeongtong-gu, Gwonseon-gu, and Jangan-gu in Suwon City, Manan-gu in Anyang City, and Uiwang City as regulated areas due to continued market instability following the December 16 measures and rapid price increases. Existing regulated areas include all of Seoul, Gwacheon, Gwangmyeong, Seongnam, parts of Goyang, parts of Namyangju, Hanam, Dongtan 2, Guri, Dongan-gu in Anyang, Paldal-gu in Suwon, Gwanggyo, Suji and Giheung-gu in Yongin, and Sejong City.

Going forward, mortgage loan regulations will be strengthened in regulated areas. Until now, the LTV for mortgage loans in regulated areas was 60% regardless of housing price. However, from March 2, the LTV will be applied differentially: 50% for amounts up to 900 million KRW and 30% for amounts exceeding 900 million KRW. This applies to all financial institutions' household loans, as well as mortgage loans for individual business owners and corporations engaged in housing rental and sales businesses.

For example, when purchasing a 1 billion KRW apartment in a regulated area, previously a loan of up to 600 million KRW (60% of the house price) was possible. But from now on, 50% LTV applies to the first 900 million KRW (450 million KRW), and 30% applies to the 100 million KRW exceeding 900 million KRW (30 million KRW), reducing the maximum loan limit to 480 million KRW.

However, the Ministry of Land, Infrastructure and Transport stated that this measure will not restrict genuine homebuyers who meet certain criteria, and the existing 60% limit will still apply. The specific criteria are: ▲household head without home ownership ▲house price under 500 million KRW ▲combined annual income of the couple under 60 million KRW (under 70 million KRW for first-time buyers), and all three conditions must be met. For support products aimed at low-income genuine buyers such as Didimdol Loan and Bogeumjari Loan, the LTV will be maintained at up to 70%.

◆ Strengthening regulations on business loans and loans for one-home households = The government also plans to strengthen regulations on business loans for home purchases. Currently, mortgage loans for home purchases are prohibited for business owners in industries other than housing rental and sales within speculative areas and speculative overheating districts, and this restriction will be extended to regulated areas.

For one-home households in regulated areas, the requirements for mortgage loans will also be tightened. Currently, one-home households in regulated areas can obtain mortgage loans on the condition that they dispose of their existing home within two years. However, going forward, in addition to disposing of the existing home within two years, they must also fulfill the obligation to move into the new home.

The new designation of regulated areas will take effect from the 21st, but mortgage loan regulations will be enforced starting March 2. Kim Heung-jin, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, explained, "Financial regulations require time for bank staff training and system preparation, so they cannot be implemented immediately and will start from the first week of March."