Government Implements New Mortgage Loan Requirements to Deter Speculation

Government Implements New Mortgage Loan Requirements to Deter Speculation. September. 06, 2005 07:13. .

On September 5, at Woori Bank’s Gyeonggi Suji Branch, only three people visited to apply for home mortgage loans during the whole morning. Multiple-home owners account for 30 to 40 percent of this branch’s customers.

While one customer got approval for a loan easily, two other customers left the bank empty-handed after being determined to be “not eligible for loans.”

A man in his 40’s, who already took out apartment mortgage loan under his name, left the bank after a bank clerk explained to him, “Starting early July, mortgage loans are not extended to persons who already have one.”

A middle-aged woman, who said that her husband took out an apartment mortgage loan, squabbled with a bank worker for a while, saying, “Why can’t the bank loan to us?” However, she eventually gave up.

On that day at Kookmin Bank’s Seocho Branch, there were no applicants for home mortgage loans. The branch previously provided consultations on home mortgage loans to at least five customers a day on average.

Kim Hyeong-oh, a deputy general manager at this branch, said, “All customers who need home mortgage loans already took out them before this month.” He predicted, “There will be a sharp decline in the demand for home mortgage loans.”

Unlike the uncrowded windows, there were lots of phone inquiries. Most callers, after explaining the situations they were in, asked, “Can I get home mortgage loan?” Quite a lot of people asked, “Should I pay back a loan taken out under my unmarried son’s name for the first installment payment for an apartment?”

The Financial Supervisory Service (FSS) said, “We will not withdraw loans taken out legally before the regulations were strengthened, unless the borrower is underage.”

Changes-

The second-phase measures to strengthen regulations on home mortgage loans are strong prescriptions against speculation. Under the measures, new loans are restricted and some loans already made have to be recalled. It is virtually impossible for those who are not end users to take out a home mortgage loan for an apartment in a speculation-ridden region.

If you want to apply for a home mortgage loan while one has already been taken out under your spouse’s name for a house in a speculation-ridden region, you have to prove that he or she, the spouse, has a sure source of income. And even if he or she satisfies that condition, a loan is extended only when the debt-to-Income ratio (DTI) is less than 40 percent. DTI comes out when you add annual principle repayments for your home mortgage loan to annual interest repayments for your other debts and divide the total by your annual gross income.

Even if you have never taken out home mortgage loans before, if you are under 30 and unmarried, you’re eligible for the loan only when your DTI is less than 40 percent.

The underage cannot take out home mortgage loans for homes both in speculative and non-speculative regions unless they are married or bread-winners of their families.

Starting from September 20, those who have taken out more than three home mortgage loans have to repay the balances of their loans in full upon maturity. Although a year of moratorium was granted, they have to be prepared in advance.

With regard to these strengthened regulations on mortgage loans, banks are recommending a strategy of “repaying existing loans first and taking out new loans later.”

Their logic goes, because the restriction is applied based on the number of loans taken out, it is wise to repay home mortgage loans for housing with low profitability first and apply for mortgage loans for promising houses later.