[10·15 Measures] Financial Services Commission Q&A on Loan Regulations: "Tighter Controls Needed for High-Priced Homes"

"Homes Priced at 1.5 Billion Won or Less Are for Ordinary Citizens and the Middle Class"
Existing Loan Limit of 600 Million Won Maintained
Only Jeonse Loan Interest Payments Included in DSR Calculation
No Impact on First-Time Homebuyers from New

The Financial Services Commission has introduced a plan to apply differentiated limits on mortgage loans, focusing on high-priced homes. In addition, the lower limit for the Debt Service Ratio (DSR) stress rate will be raised to 3%, and interest payments on jeonse loans will also be included in the DSR regulation.

Shin Jinchang, Director General of Financial Policy at the Financial Services Commission, stated at a briefing on the "10·15 Housing Market Stabilization Measures" on the morning of the 15th, "Since the June 27 measures, the growth of household debt has slowed considerably. However, concerns about supply instability, preemptive buying demand, the possibility of a base rate cut, and rising prices of high-priced homes are all contributing to continued market expectations."

He continued, "Since there is still demand for loans used for high-priced homes, we have decided to further strengthen related loan regulations."

The following is a Q&A with Director General Shin.

- The growth of household debt has slowed since the June 27 measures. What is the background for announcing additional measures?

▲ We considered the current distribution of housing prices in Seoul, the speed of price increases by region, and the extent to which loans are used in connection with housing prices. At the time of the June 27 measures, there were signs of a sharp price increase, which was reflected in the volume of mortgage loans, so we imposed a limit. However, looking at the current situation, the trend of price increases starting with high-priced homes and spreading to mid- and low-priced homes has become more pronounced. Therefore, we determined that tighter regulations are needed for homes priced at 2.5 billion won (25 hundred million won) or more.

- Why did you not introduce a ban on mortgage loans for homes priced at 1.5 billion won or more, as was done in the past?

▲ There are two reasons. In the past, the ban on mortgage loans for homes priced at 1.5 billion won or more was challenged in the Constitutional Court. Although it was ruled constitutional by a 5-4 decision, we had to consider whether it was an appropriate regulation from a societal perspective.

In addition, if we set the mortgage loan limit for homes priced at 1.5 billion won or more at 0%, it could be questioned whether this is socially appropriate. Homes priced at 1.5 billion won or less are typically where ordinary people and the middle class live,and from the perspective that these groups purchase homes by taking on a certain level of debt they can bear, we approached the issue accordingly. Considering the burden of home purchases and the inevitable reliance on loans, we decided to differentiate the loan limits.

- Does the LTV 40% regulation also apply to first-time homebuyers?

▲ The core of this measure is to strengthen the regulation in designated areas for high-priced homes from the existing 70% to 40%. There is no change in the consideration given to newlyweds. The 70% LTV for newlyweds purchasing their first home will continue to be applied going forward.

- There are concerns that homes priced below 1.5 billion won will rise in price to just under 1.5 billion won due to this regulation.

▲ It is not a matter that can be judged solely based on the 40% LTV; the 40% DSR always applies. There are control mechanisms in place to prevent home purchases that exceed income levels. From a policy perspective, it is difficult to precisely predict future market trends. Since this is speculative, it is hard to say whether prices will actually converge at 1.5 billion won.

- There are also criticisms that loan restrictions will ultimately only serve as a short-term remedy.

▲ Today, we announced a plan to accelerate the supply measures and demonstrate results in the market to build trust. We believe this will have an effect. In terms of loan restrictions, it is clear that the impact of loans on the real estate market has diminished since the June 27 measures. However, since there is still a high reliance on loans for high-priced homes, we have introduced additional measures.

- How many single-home owners will be subject to the DSR regulation on jeonse loans?

▲ It is difficult to provide a definitive answer as it varies depending on market conditions. Currently, about 52,000 people in the Seoul metropolitan area have jeonse loans. Basically, if a borrower with an annual income of 50 million won receives a jeonse loan of 200 million won, the DSR increases by about 14%. If the loan is 100 million won, the impact is about 7.4%.

- Are there any plans to further increase the risk weight for mortgage loans at banks in the future?

▲ Whether to introduce additional regulations will be reviewed by comprehensively considering the real estate market situation, the trend of household debt growth, and overseas cases. In Hong Kong, Norway, and Sweden, the minimum risk weight is already 25%. If necessary, we will consider raising it or expanding the scope of high-risk mortgage loans to which higher risk weights are applied.

- What is the reason for raising the stress rate?

▲ Recently, expectations for an interest rate cut have become one of the factors driving sentiment in the real estate market. Therefore, a mechanism was needed to offset the effects even if rates actually fall. We decided to raise the stress rate from 1.5% to 3% as a safeguard. In most foreign countries, the stress rate exceeds 3%. We believe it is now appropriate for us to move to a similar level.

- Are there plans to apply the DSR to jeonse loans and policy loans for those without a home?

▲ The effectiveness of this measure, market conditions, and the impact on housing stability all need to be considered comprehensively. For policy loans, we will also take into account their unique purpose of supporting vulnerable groups when reviewing the matter.