the government's real estate measures have designated 25 districts in Seoul and 12 districts in Gyeonggi Province as regulated areas. Here's a summary of the measures to stabilize the housing market, including reducing the loan-to-value ratio to 40% and strengthening the DSR all-rental regulation.
table of Contents
- background of the government's real estate measures
- expansion of regulated areas in Seoul and Gyeonggi
- tightening mortgage regulations
- reflecting DSR for all households
- housing Supply Measures
- frequently Asked Questions
background of the government's real estate measures
the government has announced new real estate measures, the third in a series of measures to stabilize the housing market, following the lending restrictions on June 27 and the supply measures on September 7. As the housing market has recently shown signs of overheating, additional measures were needed to stabilize the housing market.
the measures consist of three main pillars: expanding regulated areas, tightening lending regulations, and accelerating housing supply. Specifically, the designation of speculative overheating zones and areas to be adjusted has been greatly expanded, especially in Seoul and the capital region.
expanding regulated areas in Seoul and Gyeonggi
all 25 Seoul boroughs and 12 Gyeonggi provinces have been newly designated as regulated areas. Regulated areas include speculative overheating zones and areas subject to adjustment. Originally, only four Seoul boroughs - Gangnam-gu, Seocho-gu, Songpa-gu, and Yongsan-gu - were designated as regulated areas. With this announcement, all 21 Seoul boroughs have been added.
in Gyeonggi-do, the regulated areas include Gwacheon and Gwangmyeong, Bundang-gu, Sujeong-gu, Jungwon-gu, Seongnam-si, Yeongtong-gu, Jangan-gu, Paldal-gu, Anyang-dong, Yongin-si, Suji-gu, Uiwang-si, and Hanam-si.
once designated as a regulated area, the loan-to-value (LTV) ratio drops to 40%. For example, if you want to buy a 1 billion won apartment, you can only borrow up to 400 million won, and you have to come up with the remaining 600 million won yourself. As the loan limit is reduced, it is inevitable that it will be difficult for not only real buyers but also those who want to buy a home for investment purposes.
the land transaction permit zone has also been expanded. The land transaction permit system is a system to prevent real estate speculation, requiring permission from the local governor to buy or sell a house in the area. The government has decided to designate apartments in regulated areas, townhouses in the same complex, and multi-family houses as land transaction permit zones.
tightening mortgage regulations
financial regulations to curb housing demand have also been significantly tightened. Previously, the mortgage loan limit in the capital and regulated areas was 600 million won, regardless of the price of the house. From now on, the loan limit will vary depending on the market value of the house.
for homes valued at KRW 1.5 billion or less, you can borrow up to KRW 600 million, but for homes valued at KRW 1.5 billion to KRW 2.5 billion, the loan limit will be reduced to KRW 400 million, and for homes valued at KRW 2.5 billion or more, you can only borrow up to KRW 200 million. The more expensive the home, the more you need to prepare your own funds.
the stress rate has also been doubled from 1.5% to 3%. The stress rate is a weighted interest rate that reflects the possibility of future interest rate increases. For example, even if the actual loan rate is 4%, the stress rate of 3% is added to 7% to assess the borrower's ability to repay. Higher stress rates make loan screening more difficult and reduce the amount of money you can actually borrow.
subletting DSRs
we've also tightened the rules on rental loans. For single-family homeowners taking out rental loans in metropolitan areas and regulated areas, we've decided to include the interest payment on a rental loan in the DSR. DSR stands for debt-to-income ratio, which is a standard for limiting borrowing so that the sum of all principal and interest payments cannot exceed a certain percentage of a borrower's annual income.
previously, sub-rentals were excluded from the DSR calculation because they were for residential purposes, but from now on, sub-rental interest will be included in the payment. If a person earning 50 million won a year is subject to the 40% DSR standard, the total principal and interest on all loans in a year should not exceed 20 million won. If the sub-rental interest is included, the amount of mortgage that the same person can get will be reduced.
this is meant to discourage second home purchases by first-time homebuyers, meaning that people who already own a home will not be able to buy a second home while renting.
housing supply measures
the government is not only regulating, but also expanding supply. In the supply plan announced in September, the government announced that it would build 1.35 million new homes in Seoul and the metropolitan area over the next five years, or 270,000 new homes per year. This time, it presented a specific action plan to ensure that the plan is implemented smoothly.
the government is planning to speed up the initiation of various bills and housing construction. We believe that stabilizing the real estate market can only be achieved by suppressing demand, and that sufficient supply must be provided. In particular, we plan to provide a balance of public and private housing so that real buyers can find affordable housing.
frequently asked questions
Q1. Will I not be able to buy a house if it is designated as a regulated area?
A. No, you won't be unable to buy a home, but you will have to come up with more money because the loan limit will be reduced. Since the loan-to-value ratio will be limited to 40%, you will have to finance at least 60% of the home price.
Q2. Will my existing loan be affected?
A. Loans that have already been executed will not be affected. The new rules will only apply to new loans taken out in the future, although new rules may apply when a loan comes due and you extend or refinance.
Q3. Does the DSR apply to me if I only have a second mortgage?
A. No, it's the same as before. The new rule applies to borrowers who live in a rental property and take out a second mortgage. The interest on the second mortgage is included in the DSR calculation, limiting the amount of money you can borrow to buy a second home.
Q4. Does this regulation affect rural areas?
A. The regulation is focused on Seoul and some areas in Gyeonggi Province. Most rural areas are not included in the regulation, but additional areas with rising housing prices may be designated in the future.
Q5. How much will my loan limit be reduced if the stress rate increases?
A. It depends on your income and existing debt situation, but in general, if the stress rate increases from 1.5% to 3%, you can expect a 10 to 15% reduction in your loan limit, which means that the amount of money you can borrow will decrease with the same income and assets.
wrapping up
the government's real estate measures, which include the designation of Seoul and major areas in the Gyeonggi region as regulated areas and a drastic reduction in lending limits, are intended to curb the overheating of the housing market and stabilize the market by focusing on real buyers. If you're planning to buy or borrow a home, it's worth checking out the new regulations carefully.
if you have any questions or want to know more, let us know in the comments.