Limiting Mortgage Loans to 600 Million Won: Balancing Housing Price Stability and Excluding Young Buyers

In a move aimed at reining in soaring housing prices in Seoul, the South Korean government has introduced a cap on mortgage loans, restricting the maximum amount to 600 million won. While the measure is intended to cool speculative demand and promote price stability, concerns are rising among young people and genuine home seekers who fear their access to housing opportunities may become even more limited.

On the 27th, the government announced new measures to strengthen household debt management, limiting the maximum mortgage loan to 600 million won for homeowners in the capital region and other regulated areas.

The decision comes as apartment prices have surged beyond the affluent Gangnam district, raising red flags about excessive debt and speculative investments. Authorities are making it clear: loans for reasons other than primary residence purposes will be virtually blocked.

"The proportion of people borrowing more than 600 million won is less than 10 percent," said Jinchang Shin, Director General for Financial Policy at the Financial Services Commission. "Given the average housing prices and incomes in Seoul and the metropolitan area, a 600 million won cap seems appropriate," he explained.

Specifically, the new restrictions aim to curb leveraged investments by high-income earners and buyers of expensive properties, completely banning mortgage loans for multi-home owners and so-called "gap investments." Financial institutions are now prohibited from lending to purchase homes not intended for primary residence.

Those who already own one home and wish to purchase another must sell their previous home and move into the new property within six months, significantly raising entry barriers for would-be buyers.

Comparisons are being drawn with the previous administration's outright ban on apartment loans for units priced over 1.5 billion won. Unlike that blanket prohibition, the current measures are seen as more flexible since they allow loans up to the 600 million won threshold.

However, some in the market argue that the new approach weakens the existing Debt Service Ratio (DSR) principle, which calibrates borrowing capacity to income levels.

The biggest criticism is that the regulation hits young buyers and newlyweds the hardest. With reduced policy loan limits for first-time homebuyers and newlyweds, opportunities for younger generations to get on the property ladder are further narrowed.

Key government-backed loan programs such as Didimdol and Bogeumjari loans have also been scaled back. The Loan-To-Value (LTV) ratio for first-time buyers has dropped from 80 percent to 70 percent, and the maximum Didimdol loan for general purchases has been reduced from 250 million won to 200 million won.

Special policy loans for newlyweds and households with newborns have also seen their ceilings lowered to 320 million won and 400 million won, respectively.

In response to criticism, the government has emphasized the urgency of stabilizing the market. "Even if this means somewhat lower loan amounts for the younger generation, it is more desirable for the government to stabilize the housing market," said Shin.

Professor Sunjong Yoo from Konkuk University's Department of Real Estate commented, "It is inevitable the policy will be criticized for making it seem only the wealthy can afford to buy homes, but the direction seems clear and unavoidable given the circumstances."

Photo: Yonhap News

Note “This article was translated from the original Korean version using AI assistance, and subsequently edited by a native-speaking journalist.”

Photo=Yonhap News