The Financial Services Commission held a meeting on household debt with officials from related government ministries, industry groups, and housing loan and guarantee institutions on September 7 and announced additional measures to tighten household debt management to implement the government’s housing supply expansion plan.
At the meeting, officials assessed that household debt growth decelerated amid the implementation of the strengthened household debt management measures (announced on June 27). However, the pace of growth expanded somewhat in August with housing prices also increasing in certain regions. In addition, officials pointed out that due to recent expectation about interest rate cuts, there exists market expectation for rising real estate prices. In this regard, officials viewed that it is necessary to introduce additional measures, while ensuring a consistent implementation of the June 27 household debt management measures.
Additional Measures to Strengthen Household Debt Management
Strengthen Loan-to-Value Regulation in Regulated Areas (50% → 40%)
The loan-to-value (LTV) ratio applied on mortgage loans for purchasing homes in the speculation regulated areas will be tightened to 40 percent from the previous level of 50 percent. This will help to contain demand for loans especially in the speculation regulated areas, while helping to improve the soundness management for both households and financial companies.
Restrict Loans to Private Housing Business Entities (LTV = 0%)
The loan-to-value ratio applied on mortgage loans for those registered as housing business entities (for purchasing and leasing purposes) will be set at zero percent in the Seoul metropolitan area and/or speculation regulated zones, which will help to restrict the issuance of business loans in ways that could bypass the tightened mortgage rules. However, as there are concerns about potential shortages in rental housing, exemptions may be granted for newly built housing units upon approval from the Ministry of Land, Infrastructure and Transport (MOLIT).
Tighten Rules on Maximum Jeonse Loan Amount for One-House Owners
The different levels of maximum jeonse loan amount made available to one-house owners by three different jeonse guarantee institutions (SGI, HF and HUG) will be made identical at KRW200 million in the Seoul metropolitan area and/or speculation regulated zones. This will help to better manage the pace of jeonse loan growth, which has shown a rather rapid growth recently.
Further Plan
The FSC and related organizations plan to immediately implement these measures from September 8. For those who have already entered into housing agreements or applied for housing loans prior to September 8, the financial authorities will prepare interim provisions to ensure protection of borrowers and prevent disadvantages for non-speculative homebuyers.
In addition, the authorities will closely inspect financial companies to monitor their compliance with the tightened regulations. The authorities also plan to continue to have meetings on a regular basis make sure that these measures are implemented seamlessly in the market.
* Please refer to the attached PDF for details.