The South Korean government on Monday unveiled plans to impose selective tightening in mortgage-backed loans in neighborhoods across the country with overheating signs.

From July 3, loan for home buyers in regions closely watched for speculative signs cannot go over 60 percent of the property value, down from current 70 percent. Debt obligation cannot exceed 50 percent of annual income of the home buyer, also down from current 60 percent. The loan-to-value (LTV) and debt-to-income (DTI) ratios had been eased in 2014 in hopes to stimulate housing market to help kick-start domestic demand.

The eased loan regulations on top of record low interest rates fueled housing demand. Instead of universal tightening, the government will normalize the guidelines for mortgage-backed loans first in 40 neighborhoods in Seoul, Gyeonggi, and Busan as to ensure soft-landing in the housing bubble, according to a joint government announcement by the Ministry of Land, Infrastructure and Transport, and the Financial Services Commission on Monday,

The government also said that it will apply the new 50 percent DTI cap on collective loans for buyers of new apartments in speculative areas on their remaining individual mortgage loans once construction is complete.

For areas that have not been designated as speculative zones, the government said it will leave the LTV and DTI cap unchanged for another year and introduce debt to service ratio (DSR) in August at the earliest.

To protect real home-seekers, couples with an annual income of 60 million won ($52,920) or less hoping to buy their first homes worth 500 million won or less will be exempt from the stricter LTV and DTI rules.

Kim Yong-beom, secretary general of FSC, said that about 55 percent will be exempt from the changes in the designated speculative zones.

The government also would be tightening rules on redevelopment apartments particularly in Gangnam and Yeouido areas in Seoul. An owner of an apartment in redevelopment region will become eligible to just one. Currently, the owner is able to buy up to three units.

Park Seon-ho, head of home and land division at the land ministry, said that the latest measures are selectively targeted to rein in speculative demand while protecting bidders looking for homes to live in.

By Yong Hwan-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]