Lee Sung-hoon, president of the Korea Land & Housing Corporation (LH), said the 600 million won mortgage cap applied to homes priced at or below 1.5 billion won should be lowered to stabilize home prices. His point was that because it takes time for new housing supply to have an effect, purchase demand must be managed through lending restrictions.
Lee made the remarks at a press briefing held in Yongin, Gyeonggi Province, on the 30th of last month, saying, "Because there is inevitably a time lag in housing supply, now is the moment when lending restrictions are needed."
Under current rules, the mortgage cap for home purchases in the greater Seoul area and regulated zones is 600 million won for homes priced at or below 1.5 billion won. First-time buyers can borrow up to a loan-to-value (LTV) ratio of 70%. "People are said to be buying homes competitively, borrowing the full 600 million won up to the 70% LTV limit," Lee said. "That is not good for the community."
Lee drew a line, saying there had been no discussions with the Financial Services Commission or the Ministry of Economy and Finance, the agencies that oversee lending regulations.
Meanwhile, data from the Korea Real Estate Board showed that weekly apartment sale prices in Seoul rose for an 86th consecutive week in the fourth week of September, surpassing the longest streak recorded under the Moon Jae-in administration.
Funding Already Hard, Homeownership May Slip Further Out of Reach for Those in Their 20s and 30s
With LH President Lee Sung-hoon arguing that lending caps on homes priced at or below 1.5 billion won should be cut further, concerns are emerging that the threshold for buying a first home could rise even higher for people in their 20s and 30s. The intent is to curb purchase demand and price gains by tightening credit until supply effects take hold in earnest, but it could also squeeze home-buying opportunities for younger people, who have limited funds of their own and depend heavily on loans.
In particular, critics note that with both a mortgage ceiling and income-based loan screening already in place, a further reduction in the cap could push younger buyers toward credit loans or non-bank lenders, leaving them with a relatively heavier funding burden.
At the briefing on the 30th of last month, Lee called for tighter lending rules, arguing that the current cap on homes priced at or below 1.5 billion won is excessive. According to funding plan filings obtained from the Ministry of Land, Infrastructure and Transport by the office of Kim Jong-yang, a lawmaker of the People Power Party, financial institution loans accounted for 15.8724 trillion won, or 40.1%, of the 39.5984 trillion won that buyers in their 30s spent on homes in Seoul from Feb. 10 through the end of July this year. That far exceeds the 25.1% for buyers in their 40s and 14.5% for those in their 50s, indicating that young people buying their first home rely much more heavily on loans.
Even under the current system, the funding burden on younger buyers is considerable. A first-time buyer purchasing a 1 billion won home in the greater Seoul area or a regulated zone can apply an LTV of up to 70%, but the mortgage cap for homes at or below 1.5 billion won limits borrowing to 600 million won. Even excluding taxes and incidental acquisition costs, at least 400 million won of the buyer's own money is required, and if the actual loan amount shrinks under debt service ratio screening, the amount of own funds needed rises further.
Lee acknowledged the side effects that additional restrictions would have on younger people. Referring to the lending curbs, he said, "There are concerns about kicking away the housing ladder, and the plans of citizens who want to buy a home could be disrupted." On the possibility of lowering the 70% LTV for first-time home buyers, he said, "It is right that it should be reduced, but since it is a youth issue and the situation is ambiguous, I will put it obliquely."
Even so, he stressed that home prices should be made to move gradually through a degree of lending regulation, saying, "If lending is kept at the current level and home prices keep rising, the burden on more citizens will grow and the housing ladder could actually become even higher."
If lending caps are lowered further, gaps in funding capacity based on parental support and on the buyer's employer could widen. Samsung Electronics, which lends up to 500 million won at an annual interest rate of 1.5%, is a prime example. Lee said that in-house corporate loans, too, "warrant a review of their appropriateness, given the considerable public concern."
Ultimately, the core of the debate is where to place the weight of policy: between curbing price gains by reducing lending, and preserving the housing ladder for owner-occupier buyers who rely heavily on loans. In particular, critics point out that because it takes time for the effects of expanded supply to materialize, tightening lending restrictions first could shrink home-buying opportunities for younger people.
