The Government Suspends Special Mortgage Loan Products in Efforts to Curb Household Debt
Real Estate Market on the Verge of a Rebound
As the government makes the decision to halt the sale of certain special mortgage loan products as a strategy to curb household debt, there is growing anticipation to see if the real estate market, which was showing signs of a rebound, will now stabilize. With ongoing uncertainty around interest rates and a cautious approach from buyers due to recent increases in asking prices, buying sentiment is expected to freeze even further. Moreover, market experts predict that demand in the metropolitan area will shift its focus to Gyeonggi and Incheon instead of Seoul.
Suspension of Special Housing Loans for High-Income Borrowers and Temporary Second Home Owners
According to industry insiders, starting from the 27th, applications for special housing loans for high-income borrowers (annual income over 100 million won) or houses priced between 600 million won and 900 million won will be suspended. Additionally, temporary second home owners will no longer be eligible for special home loans. Initially, temporary second home owners were allowed to access special home loans if they sold their current property within three years. However, special favorable housing loans will still be available for individuals with lower incomes and genuine housing needs. Favorable conditions include a combined annual income of 100 million won or less for couples and a house price of 600 million won or less.
Reasoning Behind the Decision
The decision to change the original plan of supplying these loans until the end of January next year and declare a suspension is due to the depletion of the targeted supply reserves, which were deemed responsible for the rapid growth in household debt. By the end of August, special home loan applications had reached 35.4 trillion won, which accounted for 90% of the targeted supply (39 trillion won). The ease of obtaining loans regardless of income has been cited as the primary cause of the rapid increase in household loans.
Concerns over Inflation of House Prices
There have also been criticisms that these measures have contributed to a rise in house prices. Special home loans offer lower interest rates compared to commercial bank loans and are not included in the total debt service ratio (DSR). This has led to an increase in the number of younger consumers, particularly those in their 20s and 30s, taking advantage of special home loans to purchase their own properties. Although the pace of loan applications decreased in July and August, demand still persists due to the desire to secure loans before potential interest rate increases and the comparatively lower interest rates offered compared to commercial banks.
Effect on Loan Terms and Housing Demand
Furthermore, even with the option of a 50-year mortgage loan, repayment ability must be clearly proven, resulting in a calculation based on a maximum term of 40 years in the debt service ratio (DSR). As the term shortens and the proportion of monthly principal and interest payments increases, the loan limit decreases. Recently, the 50-year mortgage loan has gained popularity as a means to bypass DSR regulations and secure as many loans as possible.
Impact on Seoul’s Housing Market
With the government tightening lending regulations once again, there is a prediction that the upward trend in house prices in Seoul will slow down. While apartment prices in Seoul have been rising for 17 weeks, recent transactions have slowed down, leading to an increase in property listings. According to the Seoul Real Estate Information Plaza, the number of apartment transactions in Seoul increased from 3,427 in May to 3,848 in June, but then declined to 3,593 in July. This trend suggests that potential buyers are adopting a more cautious approach due to uncertainties surrounding interest rates and the rising asking prices.
In addition, the supply of properties for sale is rapidly increasing. According to Asil, a real estate big data company, the number of units available for sale reached 74,788 on the 15th, a 10.0% increase compared to the previous month (67,946). Moreover, the supply and demand index for apartment sales, a key determinant in the real estate market, is slowing down. According to data from Korea Real Estate Agency, Seoul’s weekly apartment sales supply and demand index dropped from 89.3 on the 21st of last month to 89.2 and 89.0 in the following two weeks.
Shift in Demand to Gyeonggi and Incheon
An analysis suggests that there could be a shift in demand from Seoul to Gyeonggi and Incheon. Kwon Dae-jung, a real estate professor at Sogang University Graduate School, points out that there are limited options for apartments priced under 600 million won in Seoul, despite the exclusion of the 600 million to 900 million won range from the special housing loan. He adds that areas like Nowon, Dobong, and Nowon have numerous apartments priced under 600 million won. Kwon further notes that the outskirts of Seoul, such as Geumcheon, as well as the border areas of Gyeonggi-do and Incheon, are expected to benefit from this shift in demand.
[시사저널e=길해성 기자] As the government decides to stop selling some special mortgage loan products as part of curbing household debt, attention is being paid to see if the real estate market, which was on the verge of a rebound, will calm down. As interest rate uncertainty continues and buyers’ wait-and-see attitude deepened due to the recent increase in asking prices, buying sentiment is expected to freeze further. There are also predictions that demand in the metropolitan area will focus on Gyeonggi and Incheon instead of Seoul.
According to the industry on the 15th, from the 27th, there will be applications for special housing loans for a general type (for borrowers with a combined annual income of more than 100 million won or for houses that are more than 600 million and won but less than 900 million won) are suspended. Temporary second home owners are also exempt from using the special home loan. Initially, temporary second home owners were also able to use the special home loan provided they got rid of their current home within three years. However, special favorable housing loans for the common people and those who are in real demand will continue to be supplied. Favorable conditions include a couple’s combined annual income of 100 million won or less and a house price of 600 million or less.
The reason why they changed their original plan to supply for a year until the end of January next year and declared a supply suspension was because most of the target supply reserves had already been used and they were identified as the main culprit for the rapid progress. in home debt. At the end of August, the amount of special home loan applications reached 35.4 trillion won, reaching 90% of the supply target (39 trillion won). Being able to get a loan regardless of income was cited as a reason for the rapid increase in loans to households.
There was also criticism that it had driven up house prices again. Special home loans have the advantage of having lower interest rates than commercial bank loans and are not included in the total debt service ratio (DSR), so the number of consumers, especially those in their 20s and 30s, who take special home loans. to buy their own homes has increased. Although the rate of applications rose during July and August and the speed of applications decreased, applications continue due to the demand for loans before the increase in the interest rate and the still low interest rates compared to commercial banks.
Also, even if you receive a home mortgage loan with a maturity of 50 years, if you do not clearly prove your ability to repay, a maturity of up to 40 years is applied in the calculation the DSR. As the maturity period decreases and the proportion of principal and interest to be paid each month increases, the loan limit decreases. The 50 year mortgage loan has also become popular recently as a way to avoid DSR regulations and get as many loans as possible.
There is a prediction that the rebound in Seoul house prices will slow down as the government tightens lending again. In Seoul, apartment prices have been rising for 17 weeks, but transactions have slowed recently and listings are piling up. According to the Seoul Real Estate Information Plaza, the number of apartment transactions in Seoul increased from 3,427 in May to 3,848 in June, but then fell again to 3,593 in July. It is assessed that the attitude of buyers to wait and see has intensified due to uncertainty about outstanding interest rates and the increase in asking prices.
The number of properties for sale is also increasing rapidly. According to Asil, a real estate big data company, the sales volume on the 15th was 74,788, an increase of 10.0% from the previous month (67,946). The supply and demand index of apartment sales, which can determine the buying and selling advantage in the real estate market, is also slowing down. According to Korea Real Estate Agency data, Seoul’s weekly apartment sales supply and demand index recorded 89.3 on the 21st of last month, then fell for two consecutive weeks to 89.2 and 89.0.
There is an analysis that there could be an increase in demand turning to Gyeonggi and Incheon instead of Seoul. Kwon Dae-jung, a real estate professor at Sogang University Graduate School, said, “We took the 600 million to 900 million won range from the special housing loan and saved the 600 million won range, but it hard to find an apartment won under 600 million in Seoul.” He added, “Nowon, Dobong, and Nowon have many apartments under 600 million won. “The outskirts of Seoul, including Geumcheon, and the border areas of Gyeonggi-do and Incheon are expected to benefit,” he said.
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