[2·20 Real Estate Measures] Again... Patchwork Real Estate Policies and Randomized Loan Regulations

Real Estate Measures on 2·20 Following 8·2, 9·13, and 12·16
LTV for Adjusted Areas Reduced from 60% to 50%, Over 900 Million KRW Portion Cut to 30%
Uniform Application to Existing Areas

Loan Limits Vary Greatly by Regulation Area... Bank Loan Officers Also Confused

[Asia Economy Reporter Yoo In-ho] "It is difficult to hastily discuss specific loan limits. The loan limits vary by regulated area, and we also need to check home ownership status, market prices, and income." (A bank official)

As the government once again tightened loan regulations through the February 20 real estate measures, criticism has arisen that the mortgage loan rules in the Seoul metropolitan area have become as complicated as a cipher. The loan regulations are applied differently depending on whether the area is classified as a speculative area, speculative overheating area, adjusted target area, or non-regulated area, and the criteria frequently change, causing confusion not only among demanders but also among bank branch staff.

According to the real estate brokerage industry and commercial banks on the 21st, the government plans to implement new loan regulations starting next month that reduce the loan-to-value ratio (LTV) for mortgage loans in adjusted target areas from 60% to 50%, and further reduce it to 30% for amounts exceeding 900 million KRW, leading to a surge in inquiries at loan counters from customers worried about reduced loan limits.

This comes less than two months after the total debt service ratio (DSR) and LTV strengthening measures from the December 16 real estate policy were actually applied. A B bank official said, "The entire financial sector has barely adapted to the loan system under the December 16 measures, so the emergence of new loan regulations is quite surprising."

Mortgage loan limits vary greatly depending on the regulated area. For example, in Suwon City's Yeongtong, Gwonseon, and Jangan districts, as well as Anyang City's Manan district and Uiwang City, which were newly designated as adjusted target areas, the LTV limit has been reduced by 20 percentage points. Previously, as non-regulated areas, loans could be obtained up to 70% of the house price, but with the designation as adjusted target areas, the limit has suddenly dropped to 50%.

Moreover, this regulation is uniformly applied to existing adjusted target areas, but some bank branches have not yet communicated this fact, further causing confusion. Even in Seongnam City, an existing adjusted target area, the LTV will be reduced by 10 percentage points starting next month, meaning the loanable amount can differ by tens of millions of KRW depending on the loan application date. Additionally, within Seongnam City, Bundang New Town and Pangyo New Town are classified as speculative overheating districts, limiting the LTV to 40%. This creates a situation where loan limits can differ just across a single street.

The government also applies a separate LTV for amounts exceeding 900 million KRW on high-priced homes in adjusted target areas, resulting in significant differences in loan limits depending on both the region and the house price. Furthermore, the debt-to-income ratio (DTI), which considers income, varies by regulated area, and with the need to consider DSR as well, it has become difficult not only for loan applicants but also for frontline bank staff to roughly estimate the possible loan amount.

An official from a commercial bank said, "Even for houses with the same price, the loanable amount varies greatly depending on the location and the applicant's case, so the counseling process inevitably requires careful attention."

Experts point out that this kind of confusion over real estate loan regulations has been repeated every time a real estate policy was announced under the Moon Jae-in administration, such as the August 2, 2017 measures, the September 13, 2018 measures, the December 16, 2019 measures, and the current February 20 measures. A representative example is the reversal of the government's stance on loans for tenant deposit returns during the December 16 measures, which are considered the most stringent regulations to date. The government initially announced that "loans for tenant deposit returns are allowed" in the December 16 measures. However, two days later on the 18th, the government reversed its position, stating that "from December 18, 2019, 'mortgage loans for tenant deposit returns' for apartments purchased newly with market prices exceeding 1.5 billion KRW are also prohibited."

The government is also concerned about confusion on the ground due to the changed loan regulations. The adjusted target area designation takes effect from the 21st, but the mortgage loan regulations will be implemented from March 2, allowing a 10-day grace period for this reason. Kim Heung-jin, Director of Housing Policy at the Ministry of Land, Infrastructure and Transport, said, "Financial regulations require time for training bank counters and preparing systems, so we cannot implement them immediately and will start from the first week of March."