Banks Stiffen Mortgage Requirements

On December 19, with tears in their eyes, Kim (42, salaried worker) and his wife canceled a purchase contract under which they could buy a 33-pyeong apartment at 470 million won, in Seongbuk, Seoul.

The reason is that Mr. Kim’s bank notified them on December 18 that not all the agreed loan of 2.80 million won could be provided because of the disapproval from the bank’s head office. Mr. Kim and his wife were supposed to pay the rest of the housing price on December 20, so they asked other banks for loans in a hurry, only to hear the same answer.

Banks are strengthening their standards and procedures for mortgage issuance and the financial supervisory authorities recently decided to expand the range of houses subject to the debt-to–income (DTI) ratio to include houses priced at more than 300 million won, striking a severe blow to would-be home buyers with real demand. When the DTI ratio is considered, the limit of loan is decided according to a person’s level of income.

The possibility of being a homeowner is getting remoter-

According to realtors and the financial circle, major banks changed their rules last week to get approval from their head office for new loan of more than 50 million won. As a result, many people are forced to cancel their contracts to buy houses.

Real Estate 114, an information agency on real estate market, says that the apartments priced at more than 300 million won to less than 600 million won, which will be additionally subject to the DTI ratio with the recent change, are 417,371 in Seoul, 366,090 in Gyeonggi province, and 27,513 in Incheon. All in all, the number of such apartments in the Seoul metropolitan area is 81,974, accounting for 26.1 percent of the entire apartments (3,101,820) in the area.

Real estate experts are paying close attention to see whether such restrictions on lending would lead to a depletion of housing bubble in the area where housing prices have skyrocketed recently.

In Sanggye-dong, Nowon, Seoul, many apartments are now put up for lease with asking prices of 10 to 20 million less compared in this fall, when there was an extreme shortage of houses for lease.

A realtor of H real estate agency in this neighborhood said, “Currently those who had stretched to buy houses this September or October by relying on loans or deposit money are now lowering the asking price for the lease of their apartment in order to make money and pay the rest of their house price. And in some apartment complexes, apartments are sometimes put up for urgent sale.”

abc@donga.com sukim@donga.com