Mortgage Restrictions Limited From Two To One

After the government announced on January 11 that it would take measures to restrict real estate mortgage loans, the number of people affected by this restriction has increased dramatically from 10,000 to 209,000.

Moreover, it has turned out that 3.5 out of ten people who will be limited to receive loans are mostly working class members who have loans from non-banking financial sector.

Experts point out that loan restrictions are necessary for stability of the real estate market, but also that excessive restrictions could result in weakening financial markets and drastically contracting the real estate business.

According to a document on a risk management plan for dual mortgage obtained by Dong-A Ilbo on 29 January, the number of people who will be influenced by the January real estate plan has gone up to 209,000 compared with the number (10,000) that had resulted in a measure on August 30 in 2005, which restricted to two mortgages per person.

The document drafted by the Financial Supervisory Committee and the Financial Supervisory Service in preparing for the January 11th measure contained 14 questions and answers about the mortgage, but only four basic Q & As appear in an official copy.

According to the Q&A section, 199,000 new people will abide by the new restriction in accordance with the January 11th measure and the total number of people will be 209,000 including the existing 10,000.

When it comes to the number of loans, objects of the regulation, which should reduce the number of mortgage for apartments in a speculation zone, were 21,000 (total amount of loan: 2.1 trillion won) in accordance with the measure on August 30 last year.

However, the number of objects, which should cut down the number of mortgage to one case, has enormously increased to 221,000 (total amount of loan: 23.5 trillion won) by the January measure. Numbers indicate that loans that should be redeemed compulsorily would go up 10.5 times. Moreover, among 209,000 who should reduce loans, 73,000(34.9%) got a loan from non-banking financial firms such as mutual savings banks, insurance companies, and loan companies.

In view of the fact that the financial situation of the majority of people who borrowed the money from non-banking financial sector is bad, there would be a lot of people who suffer from repayments.

A researcher Kim Hyun-wook from Korea Development Institute said “a recent restriction on mortgage has been dramatically enforced. He added that it may help reducing risks about bad loan but it may also cause a macro risk like an economic recession.

An official from FSS said that “as long as there are a bunch of exceptions for loans and enough period to adopt the new plan, the new measure is not considered to be excessive.” He added that it is inevitable that some of end users would be damaged by the new plan.

legman@donga.com