First-time Homebuyers' LTV Eased to 80%... "Transaction Relief but Limited Impact"

On the 17th, a view of apartments was seen from Lotte World Tower Seoul Sky in Songpa-gu, Seoul. The Korea Real Estate Board announced that the actual transaction price index for apartment sales in Seoul in March was 175.1, up 1.4 points from the previous month (173.7). This marks the first time in five months since recording 180.0 in October last year that the Seoul apartment sales actual transaction price index has turned upward again. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Kim Hyemin] The government has announced regulatory relaxation measures to raise loan limits for first-time homebuyers and young people. The key points include easing the loan-to-value ratio (LTV) to 80% for first-time homebuyers within the third quarter of this year and introducing a 50-year ultra-long-term mortgage. Experts evaluate this policy as a measure to revive the currently sluggish real estate transactions but also believe its impact may be limited due to external factors such as interest rate hikes and stagnant housing prices.

The loan regulation relaxation plan announced by the government at the Economic Ministers' Meeting on the 30th mainly aims to ease loan limits so that genuine buyers do not face difficulties in purchasing homes.

A representative measure is the easing of the LTV to 80% for first-time homebuyers. Currently, the LTV for first-time buyers ranges from 60% to 70% depending on the region and housing price. For example, in speculative overheated zones like Seoul, when purchasing an apartment priced under 900 million KRW, an LTV of 60% was applied with a maximum limit of 400 million KRW. However, considering the rapid rise in housing prices over a short period, the government has relaxed loan regulations for first-time homebuyers. Applying an LTV of 80% means that when purchasing a 500 million KRW apartment in Seoul, the loan limit expands from the previous 300 million KRW to 400 million KRW.

Another factor determining loan limits, the debt service ratio (DSR), will maintain its regulation, but guidelines will be improved to more accurately reflect future income for young people. Since July last year, future income can be considered in calculating DSR, but it has not been effectively utilized in practice. The government plans to change the method of calculating future income to expand its reflection and encourage banks to apply this in practice.

Additionally, the government will introduce a 50-year ultra-long-term product for those aged 39 and under and newlyweds for government-supported loan products such as the Bogeumjari Loan and Qualified Loan. Assuming a 500 million KRW loan at an interest rate of 4.4%, the monthly repayment for a 50-year product would be 2.06 million KRW, reducing the principal and interest burden by about 160,000 KRW per month compared to a 40-year maturity product (2.22 million KRW).

Experts believe that since real estate transactions have been artificially restricted through loan regulations, this will help ease loan access for genuine buyers, but there are limits to normalizing the current transaction freeze.

Ham Youngjin, Head of the Big Data Lab at Zigbang, said, "Even if the LTV is eased, due to the interest burden from rate hikes and stagnant housing prices, it will be difficult to reproduce last year's housing purchase frenzy." Park Won-gap, Senior Real Estate Specialist at KB Kookmin Bank, also said, "There is great uncertainty with the interest rate waves expected in the third quarter, so not many people will buy houses just because loans are loosened," adding, "Collective buying movements will occur when the interest rate shock passes the market's tipping point and there are signals that housing prices have bottomed out."

On the other hand, some expect transactions to partially open up centered on genuine buyers. Yoon Jihae, Senior Researcher at Real Estate R114, said, "There will likely be an increase in transaction volume due to expectations. Once the uncertainty of the local elections disappears and the supply freeze becomes apparent after the property tax assessment date (June 1), the market may shift to favor sellers." Regarding interest rate hikes, she said, "It is rare for buyers to hesitate because the desired homes are on the market and loans are available, even if interest rates are high," adding, "Even if living in the rental market, if loans are being taken out, interest rates rise equally, so interest rate hikes are unlikely to be a decisive factor in home purchases."