Financial authorities are revising detailed guidelines to reduce confusion arising from the implementation of the 'August 13 Comprehensive Financial Measures for Real Estate Market Stability,' announced just over a month ago. They are specifying exceptions for the loan-to-value (LTV) ratio for first-time homebuyers and increasing risk weights for high-value and high-LTV mortgage loans to strengthen banks' capital requirements.
According to the financial sector on September 20, authorities have recently gathered inquiries from banks regarding the application of LTV exceptions for first-time homebuyers through the Korea Federation of Banks. The August 13 measures allow for the application of the first-time LTV ratio even for individuals with prior home ownership history, provided there are unavoidable circumstances, such as inheritance during childhood, subject to review by the bank's credit committee.
However, the lack of clarity around what constitutes 'unavoidable circumstances' has led to inconsistent judgments among banks, prompting authorities to establish a common interpretation. Key inquiries include cases where a failed housing project did not result in actual home acquisition through purchase rights or instances where inherited shares of a home were sold. The financial sector views this as a move to consistently apply existing exceptions rather than an additional regulatory relaxation.
Conversely, discussions are underway to strengthen capital regulations for high-risk mortgage loans. The Financial Supervisory Service is currently negotiating with major banks on the risk weight criteria applicable to high-value and high-LTV mortgage loans.
Among the options being considered is the categorization of high-risk mortgage loans based on housing prices and LTV levels. Examples include loans exceeding 250 million won with an LTV over 40%, loans between 150 million and 250 million won with an LTV over 40%, and loans below 150 million won with an LTV over 60%. There are discussions about significantly increasing risk weights for the highest risk categories, with some proposals considering a multiplier of up to four times the current rates.
Additionally, there is a proposal to manage mortgage loans exceeding 400 million won and with a debt service ratio (DSR) over 35% as high-value, high-DSR loans. However, the specific criteria and risk weight multipliers are yet to be finalized. Financial authorities aim to establish detailed guidelines after further consultations with the banking sector, targeting implementation by January next year.
Other follow-up measures from the August 13 plan are also being clarified. The regulation on the equity ratio for residential project financing (PF) has been postponed from 2027 to 2029, but discussions are ongoing regarding how to defer risk weights, provisions, and lending restrictions. The limit for bank and insurance PF syndicate loans has been increased from 1 trillion won to 5 trillion won, and adjustments are being made regarding investment targets and funding structures.
A financial sector official stated, 'At the time of the announcement, we set a broad direction and agreed to discuss the details further with financial institutions. It seems that the application criteria will be further specified by the end of the year, reflecting inquiries raised in the field and the impact on various sectors.'
* This article has been translated by AI.
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