South Korea's financial regulators will spell out what counts as an "unavoidable circumstance" under rules that let first-time home buyers borrow more, after banks struggled to apply the standard. Borrowers who once held a home can still qualify for the higher loan-to-value ratio if the ownership was beyond their control, but vague criteria have made lenders cautious in reviewing such applications.
Financial authorities are gathering questions from banks on the exceptions through the Korea Federation of Banks, industry officials said on the 20th. They plan to issue an official interpretation soon, focusing on cases raised in common by multiple lenders.
Under the Aug. 13 housing policy package, regulators allowed borrowers with a record of past homeownership to receive the first-time buyer loan-to-value ratio if unavoidable circumstances applied and a lender's credit review committee approved. A typical example is inheriting a stake in a home as a minor. Borrowers who qualify can obtain a loan-to-value ratio of up to 70% in the greater Seoul area and regulated zones, and up to 80% elsewhere.
Regulators initially left the judgment to individual financial firms in their own credit reviews rather than setting detailed criteria for exceptions. But banks raised concerns that granting exceptions on their own, without a clear definition of unavoidable circumstances, could later be flagged in regulatory inspections. Critics said that has led banks to review applications conservatively, creating difficulties for people buying a home to live in.
To address the problem, regulators plan to firm up the criteria based on actual cases from bank reviews. The questions collected through the Korea Federation of Banks include cases in which a borrower held rights to a presale unit that never resulted in an actual home purchase because the project collapsed, and cases in which a borrower applies for a first-time mortgage after disposing of an inherited stake, according to sources. A financial authority official said interpretations would be issued quickly for questions raised in common across the banking sector.
With demand from first-time buyers rising, the interpretation is expected to have a considerable effect in the field. In Seoul last month, 9,343 first-time purchases of apartments, low-rise multi-unit housing and officetels — studio units used as either a home or an office — were completed with registration, the highest in six years since August 2020.
