Newlyweds and Households with Newborns Face Loan Limit Cut of Up to 100 Million Won for Home Purchases... Financial Policy Changes from July [Finance Microscope]

Key Points of the June 27 Household Debt Measures
Focus on Real Demand and Prevention of Excessive Loans...
Strong Regulations Implemented
Some Critics Say Only Cash-Rich Individuals Benefit

Going forward, newlywed couples and households with newborns will see their maximum loan limit reduced by up to 100 million won when purchasing a home using policy-based financial products. The government announced these changes as part of the June 27 Household Debt Management Measures. The new policy not only blocks gap investment (purchasing with a jeonse lease in place), but also imposes a uniform maximum loan limit of 600 million won, regardless of the borrower's repayment capacity. This is considered a "high-intensity measure" that effectively blocks demand for high-priced homes. Let us take a look at the financial policy changes taking effect in the second half of the year.

Key Points of the June 27 Measures: 'Focus on Real Demand' and 'Ban on Excessive Loans'

The core of these measures is to restructure the market around real demand and to restrict excessive borrowing for home purchases. The most prominent example of the "focus on real demand" is the complete ban on additional housing loans for multi-homeowners and single-homeowners within the Seoul metropolitan area and regulated zones. However, if a single-homeowner sells their existing home within six months, they will be treated the same as a non-homeowner, with a loan-to-value (LTV) ratio of 70% for non-regulated areas and 50% for regulated areas. In addition, jeonse loans for gap investment (conditional on ownership transfer) are also prohibited. A jeonse loan conditional on ownership transfer refers to a loan where the tenant receives a jeonse loan on the condition that ownership of the property changes hands on the day the loan is issued. As a result, this is expected to disrupt the funding plans of buyers who intended to use the jeonse deposit as the final payment. Furthermore, those who take out a mortgage loan to purchase a home in the Seoul metropolitan area or regulated zones will be required to move in within six months.

At the same time, the government has also presented a policy direction to ban excessive borrowing. The most notable point is the restriction of the maximum mortgage loan limit to 600 million won. This is an unprecedented regulation and is considered an extremely strong measure. The maximum limit for new mortgage loans in the Seoul metropolitan area, speculative zones, and adjustment target areas is set at 600 million won. Some critics argue that, because the rule is applied without exception even to high-income earners, only those with significant cash assets will benefit.

Additionally, the maximum term for mortgage loans has been limited to 30 years. For mortgage loans taken out for living stabilization purposes, the limit is set at 100 million won for single-homeowners, and completely banned for those with two or more homes. The limit for unsecured loans has also been restricted to "within annual income," preventing their use for home purchases. In addition, the LTV ratio has been reduced from the previous 80% to 70%, and the jeonse guarantee ratio has been tightened from 90% to 80%.

Do Policy Loans Drive Household Debt? ... Policy Loans Also Significantly Reduced

The special newborn loan, a policy loan introduced as part of the Yoon Suk-yeol administration's response to low birth rates, has also seen its limit significantly reduced. In addition to the reduction of policy loans such as Didimdol and Bogeumjari, which are representative financial products for low-income households, the government has decided not to further ease the income requirements for the special newborn loan.

The Didimdol loan is a policy product designed to support home purchases by low- and middle-income households for actual residence, allowing loans of 250 million to 500 million won depending on household type (general, newlywed, or newborn) for homes priced at up to 600 million won. However, with the new policy, the loan limit will be reduced by at least 50 million won and up to 100 million won. The Bogeumjari (jeonse) loan, which previously had a limit of 300 million won, will be reduced to 250 million won.

In addition, although there was a plan to raise the combined income requirement for couples eligible for newborn loans to 250 million won starting this year, this plan has also been scrapped.

These changes come amid ongoing criticism that policy loans have been driving up home prices, as well as a rapid increase in the scale of policy loans leading to the swift depletion of the Housing and Urban Fund, which serves as their source of funding. The government has decided to reduce the total household loan target to 50% of the original plan starting in the second half of the year, and to cut the supply of policy loans by 25% compared to the annual supply plan. This is the first time the government has explicitly stated its intention to reduce policy loans.

As a result of these measures, it is expected that it will become more difficult for new buyers to purchase many apartments in Seoul.

Meanwhile, household loans from the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) increased by about 5 trillion won in June alone. If all financial institutions are included, it is projected that household loans will increase by 6 to 7 trillion won in June. Considering the recent surge in loan demand, some observers predict that the increase could reach the highest level since August last year, when household loans grew by a record 9.6259 trillion won.