From July, LTV Preference for Low-Income and Actual Buyers Increased from 10% to 20%p

Financial Services Commission Announces Improvement Plans for Preferential Mortgage Loan Requirements and Benefits for Ordinary Citizens and Actual Buyers

[Asia Economy Reporter Park Sun-mi] Starting July 1, the preferential rate for loan-to-value ratio (LTV) for mortgage loans will be expanded from the existing 10% to 20 percentage points to support homeownership for low-income and actual demand households, and the loan limit for youth monthly rent loans will be increased from 70 million KRW to 100 million KRW. Financial authorities expect that the loan limits will be expanded for the majority of low-income and actual demand households.

On the 31st, financial authorities announced that they will steadily implement the 'Household Debt Management Plan' announced last month, while simultaneously expanding financial support for low-income and actual demand households with the contents mentioned above.

First, to provide practical help for homeownership for actual demand households without homes, the preferential conditions for mortgage loans for low-income and actual demand households will be relaxed and preferential benefits expanded. The income criteria for preferential benefits, which was previously set at a combined couple income of 80 million KRW or less, will be raised to 90 million KRW or less (for first-time homebuyers, from 90 million KRW or less to under 100 million KRW), and the housing price criteria will also be relaxed from 600 million KRW or less to 900 million KRW or less in speculative overheated districts, and from 500 million KRW or less to 800 million KRW or less in regulated areas.

Additionally, the LTV preferential benefit available upon meeting the low-income and actual demand household criteria will be expanded from the existing 10 percentage points to a maximum of 20 percentage points. For speculative overheated districts with housing prices between 600 million KRW and 900 million KRW, where there was no previous LTV preferential benefit, the rate will increase from 40% to 50%, and for regulated areas with housing prices between 500 million KRW and 800 million KRW, it will increase from 50% to 60%, providing a 10 percentage point preferential benefit. However, considering the impact on household debt and the real estate market, the maximum limit is set at 400 million KRW, and borrowers subject to the debt service ratio (DSR) will be limited within the DSR limits (40% for banks / 60% for non-banks).

Additional financial support expansion plans have also been prepared to alleviate housing burdens for vulnerable groups such as youth and newlyweds. To reduce housing cost burdens by enabling youth to use youth monthly rent loans with low interest rates and guarantee fees, the per-person limit for youth-tailored jeonse guarantees will be raised and guarantee fees lowered. Furthermore, the supply scale limit of 4.1 trillion KRW has been abolished and will be continuously expanded to allow more youth to benefit.

A financial authority official stated, "With the increase in the per-person limit, it is expected that about 5,000 youth (approximately 400 billion KRW) will be able to additionally use youth-tailored products annually," and explained, "Youth who borrow 100 million KRW will reduce their annual interest burden by about 500,000 KRW (approximately 0.5 percentage points) compared to general products, and the annual guarantee fee will also decrease by about 30,000 KRW (from 0.05% to 0.02%) compared to the existing youth-only jeonse guarantee."

Moreover, to enable jeonse loan users to more widely utilize the Korea Housing Finance Corporation (KHFC) jeonse guarantee with lower interest rates and guarantee fees, the jeonse deposit limit eligible for KHFC jeonse loans (guarantees) will be expanded from the existing 500 million KRW to 700 million KRW. Currently, the Bogeumjari Loan allows a maximum LTV of 70%, but due to the 300 million KRW limit, some borrowers cannot receive sufficient loans; therefore, the per-person loan limit will also be expanded to 360 million KRW.

A financial authority official explained, "The easing of mortgage loan regulations, expansion of youth monthly rent loan supply, and increase in Bogeumjari Loan limits will be implemented from July 1 in line with the full-scale implementation of household debt management measures such as the phased expansion of borrower-level DSR," adding, "However, the expansion of the KHFC jeonse loan guarantee deposit criteria will be implemented in the third quarter after internal regulation revisions at KHFC and preparation of bank IT systems."