Household loan growth target to be drastically reduced to 50% of original plan
Policy loans to be cut by 25% compared to annual supply plan
Mortgage loan cap for regulated areas including Seoul set at 600 million won
On the 27th, apartment prices in Mapo and Seongdong districts of Seoul rose at the largest rate since related statistics began to be published in 2013. The expectation that Seoul apartment prices will continue to rise is forecasted to sustain the upward trend for the time being. The photo shows a panoramic view of apartment complexes in downtown Seoul as seen from Namsan, Seoul. 2025.06.27 Photo by Dongju Yoon
As housing prices in Seoul surge and household debt rises significantly, the government has decided to drastically reduce the total amount of household loans available across all financial sectors. To prevent excessive bank lending from being used for the purchase of high-priced homes in Seoul, the maximum limit for mortgage loans for home purchases in regulated areas will also be capped at 600 million won. For those owning multiple homes, mortgage loans will be completely prohibited. The government will also strengthen lending regulations such as the loan-to-value (LTV) and debt-to-income (DTI) ratios, which had been somewhat relaxed under the previous administration, in an effort to stabilize the real estate market.
Household loan growth target to be cut by 50%, mortgage loans to be restricted
On the morning of the 27th, the government held an 'Emergency Household Debt Review Meeting' at the Government Complex Seoul, jointly attended by the Financial Services Commission, the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, and the Bank of Korea. At this meeting, it was decided that from the second half of this year, the total household loan growth target for all financial sectors will be reduced to 50% of the original plan. Policy loans such as Didimdol and Bogeumjari loans will also be reduced by 25% compared to the annual supply plan. If the government's plan proceeds as intended, the annual increase in household loans will decrease by up to 20 trillion won.
The government had previously stated that it would manage the annual growth rate of household loans across all financial sectors within the range of Korea's expected nominal growth rate of 3.8% this year. However, as Seoul housing prices have surged recently and the nominal growth rate is now more likely to fall below expectations, the target growth rate for household loans has been set much lower. As a result, the volume of household loans handled by banks and other financial institutions is expected to decrease in the second half of the year, making it more difficult to obtain loans.
In particular, the government will limit the maximum amount of mortgage loans for home purchases handled by financial institutions in the Seoul metropolitan area and regulated areas to 600 million won, in order to restrict the use of excessive loans for the purchase of high-priced homes. This regulation will take effect immediately from the 28th. The government also noted that, since LTV and DTI regulations will apply within the 600 million won limit, the actual loan amount will likely be even lower.
Shin Jinchang, Director General of Financial Policy at the Financial Services Commission, stated, "Financial authorities have focused on restricting loans that are not for actual demand in order to strengthen management of mortgage loans in the Seoul metropolitan area and regulated areas." He emphasized, "If necessary, we will actively consider additional market stabilization measures, such as designating more regulated areas." Shin explained, "This is the first time we are limiting the individual mortgage loan limit. The 600 million won cap was determined by comprehensively considering the housing price level in the Seoul metropolitan area, the extent to which financial sector loans are used, and what level of debt is appropriate relative to income."
The autonomous management system for household loan growth, which is currently being implemented mainly by banks, will be expanded to all financial sectors starting in the second half of the year. Currently, banks manage household loan growth by setting monthly and quarterly loan growth targets through autonomous management. From the second half of the year, this autonomous management will be extended to secondary financial sectors such as mutual finance and savings banks, in an effort to curb the growth of household loans.
Until last week, when reporting to the National Policy Planning Committee, the government had planned to observe the impact of the third phase of the stress-based debt service ratio (DSR) regulation, which will be implemented next month, before preparing additional measures. However, as the rise in housing prices has accelerated, the government has brought forward its policy response. According to the Korea Real Estate Board, the apartment sales price in Seoul this week rose by 0.43% compared to the previous week, marking the largest increase in six years and nine months.
As housing prices have risen, household loans have also increased significantly. According to the Financial Services Commission, household loans across all financial sectors increased by about 6 trillion won last month compared to the previous month, marking the largest increase in seven months since October last year. With the real estate market in Seoul heating up, the market expects that the increase in household loans this month will surpass last month's figure.
Mortgage loans completely prohibited for those owning two or more homes
As warning signals emerge from various quarters, the government is continuing to introduce measures. Real estate regulations that had been somewhat eased under the previous administration will also be further strengthened. First, in the Seoul metropolitan area and regulated areas, if a person who already owns two or more homes purchases an additional home, or if a single-home owner purchases another home without disposing of the existing one, mortgage loans for the purpose of purchasing an additional home will be prohibited (LTV=0%), thereby blocking demand for additional home purchases that are not for actual residence. If a single-home owner disposes of the existing home within six months (conditional single-home owner), the same LTV will be applied as for those without a home: 70% in non-regulated areas and 50% in regulated areas.
Kwon Daeyoung, Secretary General of the Financial Services Commission, emphasized, "You should not rush to buy a home by taking out loans that are beyond your means." He added, "The overheating and stagnation of the housing market have been repeatedly caused by people using excessive debt as leverage to buy homes beyond their repayment capacity. Now is the time to break that vicious cycle."
The LTV for first-time homebuyers in the Seoul metropolitan area and regulated areas will be tightened from 80% to 70%, and a move-in obligation (within six months) will be imposed. This measure will also apply to policy loans (Didimdol and Bogeumjari loans). The maximum limit for mortgage loans for living stabilization purposes, such as raising living expenses using homes in the Seoul metropolitan area and regulated areas as collateral, will also be capped at 100 million won.
The Financial Services Commission will also proceed without delay with the implementation of the third phase of the stress-based DSR regulation scheduled for next month. When the third phase of the DSR regulation is implemented, the amount that can be borrowed will decrease. The maturity of mortgage loans in the Seoul metropolitan area and regulated areas will also be limited to within 30 years to prevent circumvention of the DSR regulation.
Secretary General Kwon emphasized, "Now is the time for financial authorities, relevant agencies, and the financial sector to proactively manage household debt with a sense of urgency. All financial sectors must swiftly and thoroughly implement household debt management measures such as reducing the total growth target, expanding autonomous management measures, and limiting mortgage loan credit limits."
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