South Korea’s financial authorities plan to issue an official interpretation clarifying what counts as an “unavoidable circumstance” under rules that let first-time home buyers borrow more, after banks struggled to apply the vague standard consistently. Financial authorities are gathering questions from banks on the exceptions through the Korea Federation of Banks, and plan to focus the interpretation on cases raised in common by multiple lenders, industry officials said on September 20.
Under the August 13 housing policy package, regulators allowed borrowers with a record of past homeownership to still qualify for the higher first-time-buyer loan-to-value ratio if the earlier ownership resulted from circumstances beyond their control and a lender’s credit review committee approved — a typical example being inheriting a stake in a home as a minor. Qualifying borrowers can obtain a loan-to-value ratio of up to 70% in the greater Seoul area and other regulated zones, and up to 80% elsewhere.
Regulators initially left that judgment to individual banks’ own credit reviews rather than setting detailed criteria, and banks grew cautious about approving exceptions on their own, concerned that doing so without a clear definition could later be flagged in regulatory inspections — a pattern critics said has made banks review applications conservatively and created difficulties for people buying a home to live in. To address the problem, regulators plan to firm up the criteria based on actual cases collected from bank reviews via the Korea Federation of Banks, including cases where a borrower held rights to a presale unit that never resulted in an actual home purchase because the project collapsed, and cases where a borrower applies for a first-time mortgage after disposing of an inherited stake in a home.
A financial authority official said interpretations would be issued quickly for questions raised in common across the banking sector. With demand from first-time buyers rising, the clarification is expected to have a considerable effect in the field: in Seoul last month, 9,343 first-time purchases of apartments, low-rise multi-unit housing and officetels were completed with registration — the highest monthly total in six years, since August 2020.
References
Seoul Economic Daily – Regulators to Clarify Exceptions for First-Time Buyer Mortgage Rules
