How Will Borrower Loan Regulations Change... LTV Likely to Be Further Eased by 10%p

Income and Housing Price Criteria Likely to Be Relaxed

[Image source=Yonhap News]

[Asia Economy Reporter Jin-ho Kim] Financial authorities will soon announce measures to ease loan-to-value ratio (LTV) and debt-to-income ratio (DTI) regulations to help so-called genuine demanders such as young people and newlyweds purchase their own homes. It is likely that the LTV and DTI will be raised by an additional 10 percentage points, and income and housing price requirements will also be made more realistic.

According to financial authorities and the financial sector on the 9th, the Financial Services Commission is preparing measures to partially ease loan regulations for the homeless and young people. Once the ruling party’s Real Estate Special Committee is activated next week, consultations between the government and ruling party are expected to proceed quickly, with an announcement anticipated around mid-month.

Currently, in speculative areas and speculative overheating districts, the housing price must be 600 million KRW or less (500 million KRW or less in adjusted target areas), and the combined annual income of the couple must be 80 million KRW or less (90 million KRW or less for first-time buyers). If both conditions are met, in speculative areas and speculative overheating districts, LTV and DTI loans can be obtained up to 50% each (60% in adjusted target areas).

The government is strongly considering easing the LTV and DTI, which determine the loan limit when purchasing a house, by 10 percentage points each. In speculative areas and speculative overheating districts, LTV will be preferentially applied up to 60%, and in adjusted target areas, up to 70%. For example, when buying a house worth 600 million KRW, the loan limit will increase by 60 million KRW from 360 million KRW to 420 million KRW.

There are also reports that the housing price criterion applied will be raised from 600 million KRW or less to 900 million KRW or less, and the combined annual income requirement for couples will be raised from 80 million KRW or less to 100 million KRW or less. If income and housing price criteria are relaxed, the number of loan beneficiaries is expected to increase. This reflects criticism that the current preferential system has lost its effectiveness.

According to data titled "Status of Loans Applying Preferential LTV and DTI Requirements for Low-income and Genuine Demanders" submitted by the Financial Supervisory Service to Kim Byung-wook, the Democratic Party’s ranking member of the National Assembly’s Political Affairs Committee, the proportion of loans that received a 10 percentage point preferential application of LTV and DTI by meeting the low-income and genuine demander requirements within regulated areas was only 7.6% based on new loan amounts.

There is also a possibility that the easing of LTV and DTI regulations will be even greater. Song Young-gil, leader of the Democratic Party, has strongly advocated raising the LTV ratio to 90% for the homeless, and the government also shares a consensus that regulatory easing is necessary for this group.