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Seoul to Tighten Mortgage Rules
Seoul to Tighten Mortgage Rules

Seoul to Tighten Mortgage Rules

Seoul to Tighten Mortgage Rules

The government said it will toughen mortgage regulations and restrict transactions of apartments under construction as part of steps to cool the overheating real estate market.

The land and finance ministries and the financial regulator jointly announced measures to stabilize the housing market Monday—the first real estate market policy announced by the Moon Jae-in government, Yonhap reported.  

Unlike the two previous administrations that used the market as a means to boost the economy, Moon and his ministers have vowed to stabilize housing prices for the livelihood of the working class.

“The unstable real estate market under sway of speculators has made it difficult for those who really need a home to get one, weighing down on households as well as the economy,” Vice Finance Minister Ko Hyoung-kwon said.

The measure comes amid soaring apartment prices in Seoul. During the four years under the former President Park Geun-hye administration, apartment prices rose 22% while the price of jeonse, Korea’s unique home rental system, soared 52%. Average apartment prices stood at 318 million won ($180,844) in Seoul last year, which is equal to 11.6 years of an average worker’s salary.

Most notable is the toughened restrictions on mortgages, which will go into effect July 3. The government has lowered the loan-to-value ratio and debt-to-income ratio by 10 percentage points in areas preferred by real estate speculators, including Seoul, Gyeonggi Province, Sejong and parts of Busan.

The LTV, which restricts the mortgage a person can get depending on the value of the property, will be marked down to 60% from 70%. The DTI, which is linked to a person’s income, will be slashed to 50% from 60%. This means those who seek mortgages won’t get to borrow as much as before. The DTI will be applied to some collective loans for those who buy new apartments as well.

The toughened DTI and LTV, for instance, don’t apply to households who have less than 60 million won annual income, purchasing a home costing less than 500 million won and currently without a home.

“If the overheating continues, we will consider stricter measures, following a regular analysis of housing market conditions and indices,” he said.

The restriction, however, is weaker than the market had expected, according to analysts. “The government doesn’t want sudden contraction of the real estate market,” said Kim Eun-jin, chief of the research team at Real Estate 114.

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