President Lee's first real estate clampdown: A 600 million won cap on mortgages

The Lee Jae Myung administration introduced stringent housing loan caps and tighter lending standards aimed at high-income borrowers in Seoul to curb rising real estate prices and speculation.

Apartments are reflected on the window of a real estate agency on June 23. [YONHAP]

In its first major real estate policy move, the Lee Jae Myung administration is cracking down on high-income borrowers who have stretched their finances to the limit by imposing stringent caps on housing loans and tightening lending standards in speculative areas.

The new rules, which apply to the greater Seoul area and other designated regulatory zones, cap all housing-backed loans at 600 million won ($442,000) regardless of property price or borrower income. The government also imposed mandatory residency requirements, reduced maximum loan terms and blocked mortgages for multihomeowners in these zones.

Until recently, the administration had been cautious about intervening. On June 22, Lee Choo-suak, head of the economic subcommittee of the presidential state affairs committee, told reporters, “It doesn’t seem appropriate to roll out new policies based on temporary fluctuations.”

However, data from the Korea Real Estate Board showed that Seoul apartment prices rose 0.45 percent in the fourth week of June, marking the fastest weekly gain in six years and nine months.

That surge triggered Friday’s “targeted” emergency action, led by Financial Services Commission (FSC) Secretary General Kwon Dae-young. Officials from the Ministry of Economy and Finance; Ministry of Land, Infrastructure and Transport; Ministry of the Interior and Safety; Bank of Korea; Financial Supervisory Service; Korea Federation of Banks; and the five major commercial banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — participated in the meeting.

A view of apartment buildings from Mount Namsan on June 16 [YONHAP]

Blanket cap of 600 million won, residency mandate Unlike the Moon Jae-in administration, which banned mortgage loans for homes priced over 1.5 billion won in regulatory zones, the Lee administration is placing a universal cap on all mortgages — 600 million won — for any home purchase in regulated areas, regardless of the buyer’s income or the property’s value.

The move specifically targets high-income professionals and dual income households who, under the current debt service ratio rules, could legally borrow up to 600 million won if their annual income exceeds 100 million won. These borrowers have been instrumental in driving demand in Seoul’s most expensive neighborhoods, including Gangnam District, southern Seoul; Mapo District, western Seoul; Yongsan District, central Seoul; and Seongdong District, eastern Seoul.

Additionally, borrowers must now move into a purchased property within six months if they've taken out a mortgage on it. The rule is designed to prevent investors from other parts of the country from buying Seoul properties without actually living in them. Mortgages banned for multihomeowners, loan terms shortened

The government also formalized “non-price” regulatory measures that some banks had already been implementing voluntarily. All banks must now ban mortgage lending for individuals owning two or more homes in regulated areas. Single-home owners may obtain loans only if they commit to selling their existing residence within six months.

Mortgage loan terms in these zones will be capped at 30 years. The government is also banning conditional jeonse (long-term rental deposit) loans in these regions, a product often used for "gap investment" — buying a home with a tenant’s deposit while avoiding immediate full payment.

Home equity loans for living expenses will be capped at 100 million won, and multihomeowners will no longer be eligible for such loans.

Automated teller machines from Korea's major banks are pictured in Seoul on June 22. [YONHAP]

Deep cuts to total lending and policy loans

The government will halve the total loan supply target for banks in the second half of the year. Policy loans — which had previously been spared — will also see a 25 percent reduction in aggregate limits starting in the second half.

This tightening could lead banks to adopt stricter lending criteria or raise interest rates according to industry sources.

Critics warn that even genuine homebuyers with limited financial means could suffer, as tighter rules on policy loans raise barriers across the board.

“The government has essentially exhausted all available nonprice tools,” said a senior bank official. “To stay within the new lending cap, banks will either have to keep rates high or reduce loan approvals outright.”

Loan caps lowered for first-time buyers, newlyweds, families

Policy loans, like the Didimdol mortgage for low-income households, and jeonse programs, will face lowered caps across the board, regardless of region.

The Didimdol mortgage cap will drop to 200 million won from 250 million for general applicants, and to 240 million from 300 million for first-time buyers and young adults. Newlyweds will see their cap drop by 800 million won to 320 million, and households with newborns will be limited to 400 million, down from 500 million.

Rental loans will also tighten. The jeonse cap for newlyweds in the Seoul area will fall to 250 million won from 300 million, and to 160 million from 200 million in other regions. Caps for young adults and households with newborns will also fall by up to 60 million won.

Apartment rental and purchase advertisements are posted at a real estate agency in Seoul on June 25. [NEWS1]

Credit loan caps tightened, first-home buyers face stricter terms

The government also imposed tighter controls on credit loans. Borrowers will now be limited to loans equal to or less than their annual income, down from the previous threshold of one to two times their income.

First-time homebuyers will now face a reduced loan-to-value ratio of 70 percent, down from 80 percent, and will also be required to move in within six months.

The state guarantee for jeonse loans will be reduced from 90 percent to 80 percent starting July 31. This change will likely lead banks to tighten credit evaluations and offer smaller loans.

All new rules, apart from the jeonse guarantee adjustment, will take effect on Saturday. For property contracts signed before that date, the old loan rules will still apply with a grace period. For credit loans, the grace period will be determined based on loan application date rather than contract date.

The government hinted that more actions would be taken if needed.

“We are closely monitoring the market with heightened vigilance,” said an FSC official. “We will use every available tool to stabilize the market, including designating new regulated zones if necessary.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff. BY KIM NAM-JUN [kim.juyeon2@joongang.co.kr]