[Consecutive Defeats Debt Measures-③] Loan Regulations for Non-Homeowners' Actual Demand, Calls for Easing as "Too Low Compared to Major Countries"

Major Countries' LTV Caps at 70~100%
Significantly Higher Than Korea
Policy Protection Needed for Actual Buyers... "LTV Regulations Should Be Eased"

Ko Young-hwa (39, pseudonym), who works at a major financial company in Japan, made a big decision a few years ago. Initially, after working in Japan for 10 years, she planned to return to Korea last year to be with her family and friends, but due to the "soaring housing prices and loan regulations," she ultimately decided to settle and live in Japan. This spring, Ko purchased an apartment near Tokyo worth 67 million yen (approximately 691.83 million KRW). With a high credit rating and stable high income, Ko secured 90% of the apartment price and additional costs (real estate fees, taxes, registration fees, etc.) through bank loans. The amount of Ko’s own funds used for the apartment purchase was only 6.7 million yen (69.18 million KRW).

Under the Moon Jae-in administration’s ongoing household loan suppression policies, the group most affected has been non-homeowners with genuine housing needs. Due to the rapid tightening of loan regulations aimed at curbing soaring housing prices, South Korea is now considered one of the most difficult countries for genuine buyers to realize their dream of owning a home.

Even amid global concerns over overheated housing markets fueled by excess liquidity, it is rare to find a country implementing regulations as stringent as those in South Korea. Consequently, there are calls to significantly ease loan regulations for genuine buyers, such as first-time homebuyers, to levels comparable to those of major countries.

On the 22nd, Asia Economy analyzed loan-to-value (LTV) ratios in major overseas countries and found that the LTV caps range from 70% to 100%, much higher than South Korea’s 40% to 70%.

In the United States, the Federal Housing Administration’s LTV cap is 96.5%, and VA loans can go up to 100%. Japan also has a high LTV cap of 90% to 100%. Notably, since the early 1990s when the government lifted total loan volume regulations, there have been no official government restrictions related to real estate, and the market operates under private sector autonomy.

In the UK, known for its high housing prices, first-time buyers can borrow up to 95% of the home price by combining 40% government support with 55% bank loans. This system has been limited to first-time buyers since April; previously, all buyers could benefit from the 95% LTV.

Switzerland and France have LTV caps of 90% and 100%, respectively. The Netherlands also has an LTV cap of 100%. Previously, the LTV was recognized up to 106% to include additional costs such as taxes and fees when purchasing a home, but it was lowered to 100% starting in 2018.

China, which has one of the most overheated housing markets globally, also has higher LTV caps than South Korea. For multiple-homeowners, China’s LTV ranges from 50% to 60%, and for new homes, it is 70%.

In contrast, South Korea applies a 40% LTV for homes priced under 900 million KRW in speculative or overheated speculation zones, and 50% in regulated areas. For homes priced above 900 million KRW, the LTV ranges from 0% to 20%. These loan regulations are much stricter compared to major countries.

Accordingly, there are growing calls, especially among political and financial circles, to significantly ease LTV regulations for genuine buyers by referencing examples from major countries. It is argued that opportunities to own a home should be provided to non-speculative, non-homeowner genuine buyers.

Dr. Kang Min-seok of KB Management Research Institute said, "The LTV for first-time homebuyers should be raised by 30 percentage points." Dr. Kang argues that it is difficult to curb housing prices with loan regulation-centered real estate policies, so genuine buyers should at least be protected.

Yoo Seung-min, a former lawmaker and presidential candidate from the People Power Party, recently pledged to lift the LTV limit to 90% without restrictions for youth and newlyweds. Within the government and ruling party, there have also been suggestions to benchmark the UK’s first-time buyer loan system, which combines 40% government support with 55% bank loans for a maximum of 95% support.