If More Areas Become Regulated, Homes Priced at 1.5 Billion Won or Less Will Be Affected
Mortgage Loans Banned for Home Rental Business Operators in the Seoul Metropolitan Area and Regulated Zones
Starting tomorrow, the loan-to-value (LTV) ratio for mortgage loans in regulated areas (Gangnam 3 Districts and Yongsan) will be tightened to 40%. In addition, home sales and rental businesses in regulated areas and the Seoul metropolitan area will not be able to obtain loans. The maximum amount for jeonse loans for single-home owners will also be unified at 200 million won.
On September 7, the government held an "Emergency Household Debt Review Meeting" to implement follow-up measures to the "Housing Supply Expansion Plan" announced jointly by related ministries. The meeting was attended by the Ministry of Economy and Finance, the Ministry of Land, Infrastructure and Transport, the Bank of Korea, the Financial Supervisory Service, as well as the Korea Federation of Banks, associations of secondary financial institutions, the five major commercial banks, Korea Housing Finance Corporation (HF), and Seoul Guarantee Insurance (SGI).
Shin Jinchang, Director General of Financial Policy at the Financial Services Commission, explained, "After the June 27 measures, the growth of household debt had slowed, but in August, it expanded somewhat, and expectations for interest rate cuts in both the United States and Korea are significant. There are concerns about rising real estate demand, which is why we previously announced loan restrictions, but we believe additional measures are necessary."
The additional measures are largely fourfold. First, the upper limit for mortgage loan LTV in regulated areas will be tightened from the current 50% to 40%. Non-regulated areas will continue to have an LTV limit of 70%.
The decision to tighten the LTV to 40% while the mortgage loan limit has already been capped at 600 million won since June is interpreted as a preemptive measure in case regulated areas are expanded in the future. The 40% LTV policy is particularly effective for properties priced at 1.5 billion won or less.
Additionally, in the Seoul metropolitan area and regulated areas, mortgage loans for home sales and rental businesses using residential properties as collateral will be prohibited. Currently, the LTV limit is 30% in regulated areas and 60% in non-regulated areas. However, as there have been many cases of home sales and rental businesses in the metropolitan and regulated areas circumventing loan restrictions by taking out mortgage loans, supervisory regulations will be revised to prevent them from obtaining such loans.
However, exceptions will be made if a rental business operator needs to return a tenant's deposit, or if a newly constructed home is being used as collateral for the first time, as recognized by the Minister of Land, Infrastructure and Transport.
Jeonse loans will also be regulated. For single-home owners, the jeonse loan limit within the Seoul metropolitan area and regulated areas will be uniformly capped at 200 million won. This is due to concerns that jeonse loans may support rising jeonse prices and be used for gap investment.
Currently, the jeonse loan limits in the metropolitan area are 300 million won for Seoul Guarantee Insurance (SGI), 220 million won for Korea Housing Finance Corporation (HF), and 200 million won for Korea Housing and Urban Guarantee Corporation (HUG). Director Shin pointed out, "There has been criticism that it was too easy to obtain jeonse loans, and the government is not free from responsibility for this. Easy access to jeonse loans has pushed up jeonse prices and acted as a force driving up purchase prices."
Jeonse loans were originally a policy finance tool designed to stabilize housing for ordinary people. However, as loans were granted too easily without regulation, the volume of jeonse loans surged, impacting housing prices as well.
In fact, the total amount of jeonse loans increased more than fourfold from 46 trillion won in 2015 to 200 trillion won in 2024. Over the past 10 years, the total household loan growth rate was about 5.8%, but the growth rate for jeonse loans reached 18.5%.
In addition, the basis for calculating the contribution rate that banks and other institutions pay annually to the Housing Finance Credit Guarantee Fund (Jushinbo) will be revised from loan type to loan amount.
Financial institutions are required to pay a certain percentage of their housing-related loans as contributions to Jushinbo. Previously, the Financial Services Commission offered preferential contribution rates if the proportion of amortizing mortgage and jeonse loans was increased, in order to improve the quality of household debt.
Starting in April next year, regardless of loan type such as amortizing loans, if the average loan amount or less is issued, a standard contribution rate of 0.05% will be applied. For loans exceeding the average amount up to twice the average, a 0.25% rate will apply, and for loans exceeding twice the average amount, a 0.30% rate will apply.
The average loan amount is known to be about 200 million won per case. This means that for mortgage loans of 200 million won or less, the contribution rate to Jushinbo will be lower, while for loans of 300 million won or more, the rate will be higher.
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