FSC: Stricter mortgage caps take effect Wednesday in Dongtan, Giheung, Guri

Tightened lending rules will take effect Wednesday in three newly designated regulated zones — Hwaseong's Dongtan-gu, Yongin's Giheung-gu and Guri — all in Gyeonggi Province.

The Financial Services Commission said Tuesday it held a joint household-debt review meeting, chaired by Secretary General Shin Jin-chang, to discuss the lending restrictions that automatically apply following the three areas' designation as regulated zones.

The Ministry of Land, Infrastructure and Transport announced Tuesday that it had designated Dongtan, Giheung and Guri as regulated zones Monday, following a resolution by the Residential Policy Deliberation Committee. Dongtan-gu and Giheung-gu have seen prices rise on expectations of gains from the semiconductor boom and improved transport links, including the opening of the GTX-A metropolitan express rail line. Guri has benefited from its proximity to Seoul and access to transit-oriented areas.

Under banking supervision regulations, the loan-to-value ratio cap on mortgage loans in the three areas will tighten from 70 percent to 40 percent. Relaxed LTV limits of 60 to 70 percent will continue to apply for first-time homebuyers and policy mortgage products. Multi-home owners purchasing property anywhere in the greater Seoul metropolitan area remain subject to a blanket LTV cap of zero percent.

Jeonse loan rules will also tighten. Borrowers who hold a jeonse loan will be barred from purchasing apartments priced above 300 million won ($195,000) in the designated areas, and jeonse loans for those who acquire apartments above that threshold in the same areas will likewise be restricted. Borrowers carrying unsecured loans of more than 100 million won will be prohibited from buying homes in regulated zones for one year from the date the loan is disbursed.

In addition, single-homeowners whose property undergoes reconstruction or redevelopment will be barred from purchasing additional homes when taking out interim-payment or relocation loans. Non-residential businesses — other than those engaged in home sales or rental operations — will also be restricted from taking out mortgages to purchase homes in regulated zones.

However, borrowers who completed a loan application through a financial institution's computer system by Tuesday — before the regulated-zone designation takes effect — or who signed a home-purchase contract and can prove payment of a deposit, will remain subject to the previous rules.

Tuesday's meeting was attended by the Ministry of Land, Infrastructure and Transport, the Bank of Korea, the Financial Supervisory Service, the Korea Federation of Banks, second-tier financial industry associations, and the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup.

Participants said that while housing price volatility has been rising in parts of the country, particularly in the semiconductor belt, the new measures are expected to cool some of the market overheating. They noted, however, that risk factors remain — including persistent expectations of further price increases and growing liquidity in the financial system — and that vigilant market monitoring must continue.

Secretary General Shin called on the financial sector to cooperate fully to prevent confusion on the ground as the tightened rules take immediate effect. "We ask that you make every effort to train frontline branch staff, check computer systems and keep customers informed," he said. He also urged prospective homebuyers in the affected areas to familiarize themselves with the new lending rules so their financing plans are not disrupted.

Shin also renewed a warning over household debt. "The upward trend in household borrowing — driven mainly by miscellaneous loans — continues," he said, adding that the FSC plans to take active steps, including on-site inspections where necessary, against financial institutions that persistently fail to meet management targets.