Financial authorities are reviewing ways to ease a balance-payment loan crunch centered on prospective residents of newly built apartments, and have decided to exclude buyers of existing apartments as well as any easing of the loan-to-value (LTV) ratio from the scope of support, according to sources familiar with the matter. The move reflects concerns about stoking home prices and aligns with the government's broader push to boost housing supply.
The Financial Services Commission (FSC) is looking for ways to address the balance-payment loan crunch that emerged after banks independently tightened their mortgage lending limits to comply with household loan volume caps, according to Yonhap.
The issue came to a head at a real estate policy forum chaired by the president last month, when the plight of a buyer at Maegyo Station Palucid — a newly built apartment complex in Suwon — who was unable to secure a balance-payment loan drew widespread attention. Authorities pledged to ease the burden on genuine end-users such as young buyers and newlyweds through targeted support. Since then, confusion has grown among market participants over exactly who would qualify as an eligible end-user.
Amid that uncertainty, authorities have decided not to include buyers of existing apartments in the support scope. The reasoning is that buyers who subscribed to new apartments before the June 27 tightening last year — when lending regulations were significantly strengthened — cannot be treated the same as those who purchased existing apartments in the first half of this year, after the regulations were already in place. The decision also aligns with the government's policy of promoting new housing supply.
On Tuesday, authorities summoned the five major banks — KB Kookmin, Shinhan, Hana, Woori and Nonghyup — and asked them to ensure that balance-payment loans are disbursed without disruption to genuine end-users preparing to move into newly built apartments. Banks are currently extending group loans to Palucid and some other complexes on a voluntary basis.
Some in the real estate market have raised fairness concerns, arguing that existing-home buyers who drew up financing plans within the same regulatory framework as new-apartment subscribers should not be excluded. There are also concerns that resolving the balance-payment loan crunch for new apartments would make it practically difficult for banks to stay within their household loan growth target of 1.5 percent this year. Authorities are currently estimating the volume of balance-payment loan demand in the second half of the year and the expected net increase in total household loans that would result.
Authorities have also decided to exclude LTV ratio relaxation from the targeted support measures for end-users such as young buyers and newlyweds. Under the June 27 regulations last year, the LTV for mortgages on a first-time home purchase in the Greater Seoul area and regulated zones — including Didimdol and Bogeumjari loans — was cut from 80 percent to 70 percent. Under the Oct. 15 regulations that same year, the LTV for non-homeowners taking out mortgages in regulated zones was further reduced from 70 percent to 40 percent.
The real estate forum's public comment board, which ran through Friday, received calls from first-time buyers asking that the 600 million won ($416,000) loan cap be lifted so they can fully benefit from the 70 percent LTV, as well as demands for easing of the debt service ratio and preferential LTV treatment.
Other proposals submitted included expanded low-interest loan support for first-time buyers, the creation of a dedicated LTV tier for young buyers, a request that banks maintain mortgage credit insurance for newlyweds and ease balance-payment loan conditions, and an expansion of the "future income recognition" system that factors in young borrowers' projected earnings.
Authorities are wary, however, that easing LTV limits while housing supply remains sluggish could simply drive up home prices. There is also a view that relaxing the lending regulations introduced to stabilize prices — precisely when prices have risen — would contradict the principles underlying those regulations.
Authorities are therefore exploring options that would not directly fuel home prices. The focus is expected to fall on supporting supply-side financing rather than demand-side lending.
Among the measures under review is an expansion of public guarantees for project financing to ease funding constraints for housing developers, particularly for non-apartment supply projects that the Ministry of Land, Infrastructure and Transport has been emphasizing.
The real estate measures from the FSC and the Ministry of Land, Infrastructure and Transport are expected to be released with some delay after the Ministry of Economy and Finance announces its tax reform plan. Some observers expect the package to be unveiled around mid-August.
kimstar@heraldcorp.com
