The federal government is tightening housing loan requirements again in order to rein in mushrooming household debt.
From July, housing loan rules will be tightened for apartments costing a lot more than W600 million in areas called speculative zones, obliging borrowers to repay up to 40 percent of their loans from their gross annual income (US$1=W1,109)
However the average apartment price in Seoul has already reached W1.1 billion, rendering it doubtful whether apartments costing significantly less than which can be classified as "expensive." Subsequently, the tougher lending rules connect with an impressive 84 percent of apartments in Seoul and 33 percent in surrounding Gyeonggi Province.
At the moment, the 40-percent rule applies and then apartments in speculative zones that cost a lot more than W900 million and loans surpassing W100 million.
Signs are already coming that the brand new rules could spark a last-ditch buying frenzy and drive up prices a lot more. From July next year, the 40-percent rule will connect with anyone whose loans surpass W200 million, and the entire year from then on the cutoff will be W100 million.
Based on the Financial Services Commission, a staggering 77 percent of most households in Korea will be at the mercy of the toughened rules at that time. Also, banks will be asked to check individual income data to measure the 40-percent loan limit. Which means a person earning W80 million a year is only going to be permitted to borrow W32 million.
Finance Minister Hong Nam-ki on Thursday said the goal is to rein in galloping household debt and decrease the growth rate from today's five-to-six percent to four percent next year.
As of the end of this past year, Korea's total household debt stood at W1.73 quadrillion and its own household debt ratio compared to GDP reached 103 percent.