Asia: South Korea’s government to tighten mortgage limit

The South Korean government released a new set of measures, planned to take effect from next year, in a bid to rein in ballooning household debt amidst expectations of increasing interest rates.

Comprehensive measures were jointly announced by the Ministry of Strategy and Finance, the Ministry of Land, Infrastructure, and Transport, and the Financial Services Commission, as the government will tighten mortgage rules by revising the debt-to-income (DTI) to have a more accurate representation of the actual income when licensing new loans.

The latest measures also include limiting maturity of additional loans taken out by multiple homeowners to receive additional loans. This would render additional borrowing by multiple homeowners, hence reducing the chance of people applying for loans beyond what they can realistically afford.

South Korea’s Deputy Finance Minister, Lee Chan-Woo, said that with the new DTI ratio taking effect next year, it would be difficult for prospecting investors to profiteer through the so-called gap investment. A gap investment refers to investors buying apartments that are under long-term lease contract at a lower price from the landlord so that they can make the profit if the price of housing jumps.

According to RFi Group data, we can see an increase of 2% from H2 2016 to H1 2017, where currently 25% of the market own a home loan. With the new measures taking place next year, it is likely that the number of home loans taken up will decline.

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