[President Yoon Seok-yeol Elected] "Up to 80% LTV for First-Time Home Buyers"... Will Loan Regulations Be Eased?

Yoon Suk-yeol, the president-elect of the 20th Republic of Korea, is posing with a bouquet of flowers at the "People Power Party 20th Presidential Election Vote Counting Situation Room" set up at the National Assembly Library in Yeouido, Seoul, in the early morning of the 10th. (Photo by Yonhap News)

[Asia Economy Reporter Ryu Tae-min] With Yoon Seok-yeol of the People Power Party elected as the 20th president, expectations are rising that various loan regulations, including mortgage loan restrictions, will be eased. In particular, there is growing attention as calls increase to expand financial support centered on young people and newlyweds who lack sufficient time to prepare assets to buy a home.

President-elect Yoon has pledged to raise the loan-to-value ratio (LTV) ceiling to 80% for first-time homebuyers. He also plans to unify the LTV at 70% regardless of region, even if it is not a first-time purchase. However, it appears that a differentiated LTV of 30% to 40% will be applied to multi-homeowners depending on the number of homes they own.

Currently, when purchasing a home, the LTV is applied between 20% and 70% depending on whether the area is a speculative zone, the sale price, and the number of homes owned. In speculative or overheated speculative zones, an LTV of 40% applies to homes priced at 900 million KRW or less, and it decreases to 20% for prices exceeding 900 million KRW. For first-time homebuyers, if the combined annual income of the couple is 100 million KRW or less and the home price is 900 million KRW (or 800 million KRW in regulated areas) or less, the LTV is relaxed by 10 percentage points. In regulated areas, if a home is purchased for 500 million KRW or less, an LTV of 70% applies.

In particular, President-elect Yoon has promised to support loans for home purchases at low interest rates for newlyweds up to 400 million KRW for three years, and up to five years in case of childbirth, and to provide support up to 300 million KRW for first-time homebuyers for three years.

However, despite the easing of LTV regulations, there are concerns that the DSR (debt service ratio) regulation remains a hurdle, often limiting loan amounts. DSR refers to the ratio of the total principal and interest repayment of all financial loans to annual income. Currently, it applies when the total loan amount exceeds 200 million KRW, and if the annual income is 50 million KRW, the annual repayment of principal and interest must not exceed 20 million KRW. Especially from July, the DSR regulation application threshold will be strengthened from a total loan amount of 200 million KRW to 100 million KRW. President-elect Yoon has not announced any separate pledges regarding the easing of DSR regulations.

Professor Cho Joo-hyun of Konkuk University’s Department of Real Estate said, “It is not easy to expect a rapid easing of loan regulations,” adding, “As interest rates continue to rise, the burden of loan interest also increases, making it difficult for the total loan volume to explode.”