Lee Sung-hoon, president of the Korea Land & Housing Corporation (LH), has argued that mortgage limits on homes priced at 1.5 billion won or less should be cut further, raising concerns that buying a first home could become even harder for people in their 20s and 30s. The argument is that lending should be tightened to curb purchase demand and rising home prices until the effects of new supply take hold. But critics say it could also shrink buying opportunities for young adults, who have limited savings of their own and rely heavily on loans.
They point out that mortgage caps and income-based lending screens already apply at the same time, and that further cuts to limits could push young buyers toward credit loans or non-bank lenders, leaving them with a relatively heavier financing burden.
Lee made the case for tighter lending rules at a press briefing on the 30th of last month, saying the current mortgage limit applied to homes priced at 1.5 billion won or less is excessive. According to funding plans submitted by the Ministry of Land, Infrastructure and Transport to the office of Rep. Kim Jong-yang of the People Power Party, buyers in their 30s spent 39.5984 trillion won on homes in Seoul between Feb. 10 and the end of July this year. Of that, 15.8724 trillion won, or 40.1%, came from loans by financial institutions. That compares with 25.1% for buyers in their 40s and 14.5% for those in their 50s, indicating that young adults buying their first home depend far more on borrowing.
Even under the current rules, the financial burden on young buyers is substantial. Someone making a first-time purchase of a 1 billion won home in the greater Seoul area or a regulated zone can borrow up to 70% of the property value under the loan-to-value (LTV) ratio, but the mortgage cap on homes priced at 1.5 billion won or less limits the loan to 600 million won. Even excluding taxes and acquisition costs, the buyer needs at least 400 million won of their own money, and that figure rises further if the debt service ratio (DSR) screen reduces the actual loan amount.
Lee acknowledged the side effects additional regulation could have on young adults. On lending rules, he said, "There are concerns that this amounts to kicking away the housing ladder, and it could disrupt the plans of people who want to buy a home." Asked about the possibility of lowering the 70% LTV ratio for first-time buyers, he said, "It is right that it should be reduced, but because this is a youth issue it is ambiguous, so I will leave it vague."
At the same time, he stressed that lending rules are needed to keep home prices moving gradually. "If loans are kept at current levels and home prices keep rising, the burden on more people will grow and the housing ladder could end up even higher," he said.
If mortgage limits are lowered further, gaps in financing could widen depending on family support or where a buyer works. Samsung Electronics, which lends employees up to 500 million won at an annual rate of 1.5%, is a leading example. Lee said employer loans also "need to be examined for appropriateness, given the level of public concern."
Ultimately, the debate comes down to where policy should place its weight: on curbing price increases by reducing lending, or on preserving the housing ladder for owner-occupier buyers who depend heavily on loans. Critics note that because it takes time for expanded supply to have an effect, tightening lending rules first could narrow the chances for young adults to buy a home.
