[Practical Finance] Considering Home Purchase with Newborn Special Loan to Avoid Loan Regulations?

Increase in Transactions of Mid-Low Priced Apartments Under 900 Million KRW in the Seoul Metropolitan Area
More Than Half of Seoul Transactions Are Mid-Low Priced Apartments

"During Housing Price Adjustment, Secure Your Home with the Newborn Special Loan"

Last December, Combined Spousal Income Requirement Raised from 130 Million to 200 Million KRW
Ministry of Land, Infrastructure and Transport Plans to Ease Income Requirement to 250 Million KRW This Year

"You Should Check What Percentage the Purchase Price Is Compared to the Peak"

Seoul apartment view. Photo by Yonhap News

The proportion of apartment transactions priced under 900 million KRW (with exclusive area under 85㎡) in the Seoul metropolitan area is increasing. This trend contrasts with the overall decrease in apartment transactions in the metropolitan area due to loan regulations such as the introduction of the second phase of the Debt Service Ratio (DSR) stress test and the financial authorities' policy to manage total household debt.

As financial authorities tighten funding, it is analyzed that real demand buyers are maximizing their borrowing capacity to purchase homes. In particular, the newborn special loan, which can be used to purchase apartments priced under 900 million KRW and has a high likelihood of securing funds, is believed to have played a significant role.

Demand Concentrates on Apartments Under 900 Million KRW... Newborn Special Loan Utilization Possible

According to the Ministry of Land, Infrastructure and Transport's real transaction price disclosure system on the 8th, the proportion of apartment transactions in the metropolitan area for apartments with exclusive area under 85㎡ and priced under 900 million KRW (as of the previous day) was 75.8% (6,157 cases) in December last year, an increase of more than 10 percentage points compared to 66.7% (18,948 cases) in July last year. July last year was the period with the highest recent transaction volume in the metropolitan area.

The proportion of mid-to-low priced apartment transactions was higher in Incheon and Gyeonggi than in Seoul. From July to December last year, this proportion in Incheon was around 86-89%, and Gyeonggi showed levels of 77-82%. Also, in Seoul, this proportion increased to 53.5% in December last year compared to the 40% range from July to November last year.

Kwon Young-seon, team leader of the Real Estate Investment Advisory Center at Shinhan Bank, said, "Currently, the real estate market is experiencing a decrease in transaction volume due to loan regulations," adding, "In such a situation where it is difficult to obtain loans, buyers tend to utilize the newborn special loan."

The newborn special loan is a policy that allows non-homeowning couples who have given birth within two years from the application date to secure up to 500 million KRW when purchasing an apartment with an exclusive area under 85㎡ and priced under 900 million KRW. According to the Housing and Urban Fund, the minimum interest rate for the newborn special loan is 1.60% per annum, which is lower than the minimum interest rate of the Didimdol loan (2.65% per annum), resulting in less burden for borrowers.

Even with the same income, borrowers can get a lower interest rate with the newborn special loan. For example, if a single-income couple has an annual income of 50 million KRW, the interest rate is 2.20% per annum with the newborn special loan, compared to 3.35% per annum with the Didimdol loan.

It has also become easier to obtain the newborn special loan. In December last year, the Ministry of Land, Infrastructure and Transport raised the combined income requirement for couples from 130 million KRW to 200 million KRW. Team leader Kwon explained, "With loan regulations making borrowing difficult and the income criteria relaxed, demand for the newborn special loan is expected to increase."

Jung Su-ho, director of the Housing Fund Division at the Ministry of Land, Infrastructure and Transport, said, "We relaxed the income criteria a month ago, so immediate further relaxation is difficult, but we plan to increase the income limit to 250 million KRW within this year."

"Recommended to Purchase a Home with Newborn Special Loan During Housing Price Adjustment Period"

Kim Hyo-seon, senior real estate expert at NH Nonghyup Bank, said, "Due to the shortage of new apartments in the metropolitan area, not only sales prices but also jeonse (long-term deposit lease) and monthly rents may rise. For those currently living in jeonse, using the newborn special loan to purchase a home can be a good strategy."

Kim added, "Last summer, when housing prices rose mainly in Seoul, transactions were concentrated on high-priced apartments, but due to loan regulations, transactions of high-priced apartments have decreased and borrowing money has become difficult. In this situation, interest will likely focus on mid-to-low priced apartments under 900 million KRW for the time being."

While the proportion of transactions for apartments under 900 million KRW purchased with the newborn special loan is increasing in the metropolitan area, the overall housing sales market is shrinking. According to the Ministry of Land, Infrastructure and Transport's real transaction price statistics, the metropolitan area transaction volume peaked at 28,417 cases in July last year and dropped to 12,496 cases in November last year. In Seoul, transactions decreased from 9,216 to 3,296 cases during the same period; in Incheon, from 3,331 to 1,765 cases; and in Gyeonggi, from 15,870 to 7,435 cases. The transaction volume for December last year is still being compiled.

As loan regulations by financial authorities continue, housing transaction volumes are declining. Although the base interest rate was cut twice in the second half of last year, mortgage loan interest rates have risen because the additional margin rates did not fall. According to the Bank of Korea, the average interest rate on new mortgage loans from deposit banks was 4.30% in November last year, steadily rising since 3.50% in July last year. Furthermore, with the planned introduction of the third phase of the stress DSR in July this year, regulatory policies are expected to continue.

Due to the decrease in transaction volume, apartment prices in the metropolitan area are also on a downward trend. According to the Korea Real Estate Board, metropolitan area apartment prices showed an upward trend from May last year but fell by 0.02% for two consecutive weeks starting from the fourth week of December last year. Seoul housing prices rose weekly from the fourth week of March last year but stopped rising in the fifth week of December last year.

"Carefully Check How Much the Purchase Price Has Fallen Compared to the Peak"

Experts advise carefully assessing the appropriateness of the purchase price when buying a home with the newborn special loan during such a housing price adjustment period. Kim said, "In a market with little transaction activity and stagnation like now, I recommend focusing on purchasing lower-priced properties."

He especially noted, "Even within the same complex, asking prices can vary. When there is high demand for switching homes, residents currently living there may offer prices several tens of millions of KRW lower, so it is important to pay attention to these factors."

On the 24th, as apartment transactions shrink due to loan regulations and other factors, listings continue to accumulate. Sale and jeonse (long-term lease) flyers are posted at an apartment complex real estate in Gangnam-gu, Seoul. Photo by Kang Jin-hyung

Park Won-gap, senior real estate expert at KB Kookmin Bank, said, "When purchasing apartments under 900 million KRW with policy loans, it is important to carefully consider how much cheaper the purchase price is compared to the peak. In Seoul, popular areas have fallen about 10% from the peak, while other areas have dropped about 20-25%, so it is important to buy after observing these levels."