[Exclusive] Transition Committee Considers Allowing Mortgage Loans for Houses Over 1.5 Billion Won... Raising the 'Loan Restriction Threshold'

Order to Reset Amount Baseline
Possibility of Housing Loan up to 2 Billion KRW Reflecting Housing Prices
Financial Services Commission Preparing Detailed Baseline
Comprehensive Readjustment of LTV System Underway

[Image source=Yonhap News]

[Asia Economy Reporters Koo Chae-eun and Kim Dong-pyo] The Presidential Transition Committee (PTC) is reportedly considering raising the mortgage loan prohibition threshold by about 300 million to 500 million KRW. Currently, mortgage loans are not allowed for houses priced over 1.5 billion KRW based on market value, but the committee plans to raise this limit up to 2 billion KRW to partially allow loans. This reflects the significant increase in houses priced over 1.5 billion KRW since the policy was introduced in 2019 due to the rapid rise in real estate prices, as well as the next administration’s intention to ease real estate regulations.

A key official from the PTC explained on the 31st, "There is a consensus that the current mortgage loan prohibition threshold of 1.5 billion KRW is too strict compared to current market prices," adding, "The Financial Services Commission is preparing detailed criteria on how much to raise the threshold to ease loans for genuine buyers."

The PTC is deliberating between 1.8 billion KRW and 2 billion KRW. An official who attended the PTC’s Financial Services Commission briefing said, "If the loan restrictions are completely removed, it could cause a significant rise in housing prices and side effects," and added, "Within the PTC, there is intense debate over whether to set the threshold at 1.8 billion or 2 billion KRW, but a new standard will be established considering the median housing price and other factors." It appears concerns about the surge in real estate prices will be taken into account.

President-elect Yoon Suk-yeol is presiding over the Economic Subcommittees 1 and 2 and the Science, Technology, and Education Subcommittee briefing meeting held at the Presidential Transition Committee in Tongui-dong, Jongno-gu, Seoul on the 31st. Photo by Kim Hyun-min kimhyun81@

The PTC’s consideration to raise the loan prohibition threshold is largely due to the sharp rise in real estate prices under the current administration. In 2019, the Financial Services Commission set the threshold at 1.5 billion KRW based on the upper housing price and field investigations by the real estate inspection team, introducing a policy to ban mortgage loans on houses exceeding this price to curb price surges. However, since then, prices have risen significantly, and as of the end of 2020, there were 267,013 apartments in Seoul priced over 1.5 billion KRW, accounting for more than 20% of the total. According to KB Real Estate Statistics, the top 20% of housing prices in Seoul based on March sales prices this year are currently around 2.4 billion KRW.

If the 1.5 billion KRW loan prohibition threshold is raised, the loan-to-value ratio (LTV) of 40% for houses priced below 900 million KRW and 20% for houses priced between 900 million and 1.5 billion KRW (based on speculative and overheated speculation zones) are also expected to be adjusted. The 900 million KRW threshold, where the LTV drops from 40% to 20%, was based on the definition of high-priced housing in the Income Tax Act enforcement decree during the December 19 measures, but the Income Tax Act was revised last December to raise the non-taxable threshold for "high-priced housing" to 1.2 billion KRW, reflecting the recent surge in real estate prices.

Professor Seo Jin-hyung of Gyeongin Women’s University (President of the Korean Real Estate Society) said, "Even if the regulation on loans exceeding 1.5 billion KRW is eased, if it does not apply to multi-homeowners and is selectively relaxed only for first-time homebuyers or genuine buyers switching homes, real estate prices will not surge, and an exit strategy can be established allowing genuine buyers to purchase houses priced over 1.5 billion KRW."