‘LTV up to 70%’ Boasted Loudly... Actual Loan Limit Increased by Only 40 Million Won

Yo, Announcement on 60% LTV for Speculative Areas and 70% for Adjustment Areas for Non-Homeowners
Preferential Rate Increase Up to 20%p... Housing Price Standard Raised from 600 Million to 900 Million
Loan Limit Capped at 400 Million, Raising Concerns Over Effectiveness

[Asia Economy Reporter Ryu Tae-min] The Democratic Party's Special Committee on Real Estate has decided to ease housing loan regulations by raising the loan-to-value ratio (LTV) for mortgage loans for non-homeowners up to a maximum of 70% in regulated areas, which is expected to reduce the burden on genuine buyers trying to purchase a home. However, since the maximum loan limit is capped at 400 million KRW even with the increased LTV, the actual increase in loan amount is only a few tens of millions of KRW, leading to criticism that the real effect will be minimal.

According to political circles on the 28th, the day before, the Democratic Party's Special Committee on Real Estate announced financial, tax, and supply improvement measures to stabilize the housing market. The improvement plan also includes easing loan regulations for non-homeowners. The preferential LTV rate for genuine buyers will be expanded from the current 10 percentage points to up to 20 percentage points.

The housing price criteria were also raised from 600 million KRW to 900 million KRW for speculative and overheated districts, and from 500 million KRW to 800 million KRW for regulated areas. The income criteria were increased from a combined 80 million KRW for couples to 90 million KRW, and for first-time buyers from 90 million KRW to 100 million KRW, allowing more non-homeowners to benefit.

Applying the improvements, when taking out a loan to purchase an apartment in speculative and overheated districts such as Seoul, the LTV limit will increase from 40% to 60% (with a 20 percentage point preferential application), and in regulated areas from 50% to 70%. For example, when purchasing a 900 million KRW apartment in Seoul, an LTV of 60% will apply to 600 million KRW (360 million KRW), and an LTV of 50% will apply to the excess 300 million KRW (150 million KRW), resulting in a total LTV limit of 690 million KRW.

The problem is the difference between the LTV limit and the actual loan amount that can be received. This is because the maximum loan amount is restricted within the borrower's total debt service ratio (DSR) limit of 400 million KRW. This means the loan limit only increases by 40 million KRW compared to the current 360 million KRW loan limit for a 900 million KRW apartment applying the 40% LTV. Online real estate communities criticize this as mere window dressing, calling it a ‘Josam-mosa’ (a Korean idiom meaning a change in appearance but no real difference).

Professor Seo Jin-hyung of Gyeongin Women's University (President of the Korean Real Estate Society) said, “The policy intention to lower the threshold for non-homeowners to purchase a home is good, but it is questionable how effective it will be,” adding, “Other regulations such as the maximum loan limit should also be revised together to achieve a more significant effect.”