Gov’t to increase loans for low-income buyers

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Gov’t to increase loans for low-income buyers

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A realtor’s office in Yongsan District, central Seoul, on Friday. The government designated 11 districts in Seoul, including Yongsan, and the administrative city of Sejong as speculative investment regions where its toughest regulations will be applied. [YONHAP]

The government said on Friday it is working on expanding its budget to help low-income households take out mortgage loans at a reduced interest rate.

The Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transport are trying to expand the budget to support low-income households taking out mortgage loans from the current 8 trillion won ($7.1 billion) to 10 trillion won. The government announced earlier this week that they will toughen regulations on the real-estate market to curb speculation but that they will work on helping low income households find new homes.

The loan, dubbed the “Stepping Stone Loan,” is available to first-time home buyers and people with no residence under their name. Applicants must earn less than 60 million won a year and can receive a loan up to 200 million won at a lower interest rate than those offered at financial institutions if they are planning on buying a housing unit worth less than 500 million won. The interest rate is between 2.25 percent and 3.15 percent based on the borrowers’ credit and financial stability. Currently, the 8 trillion won budget comes from public institutions but the government plans on creating an additional 2 trillion won fund from private financial institutions.

The increased budget will be aimed at tackling the high demand for the loan and help more low-income households find a home.

“The demand for the Stepping Stone Loan has increased following the hike in interest rates [in private financial institutions],” said an official from the Transport Ministry. “We believe that the expanded budget will give more benefits to people who are actually going to live in the places that they are purchasing.”

According to the government, about 87,000 people received loans through the program as of the end of last year. The Transport Ministry said it will toughen the loan application process to reduce the number of people who are trying to purchase housing units for speculative purposes.

In the past, the government asked that only borrowers who actually planned to live in the residence apply through the special mortgage programs, but this was not strictly enforced. Moving forward, the government has mandated that borrowers must live in a property and, if they are found to live elsewhere, borrowers will be forced to pay back the money.

Details are not finalized yet, but government officials said they are also discussing giving more financial benefits to newlyweds looking for a home. The Transport Ministry added that it will consider raising interest rates and the maximum loan amount. For example, the Transport Ministry is planning on raising the maximum mortgage loan for newlyweds from the current 200 million won to 220 million won, while raising the interest rates from 0.2 percent to 0.5 percent.

Meanwhile, the government toughened loan-to-value and debt-to-income requirements in regions that are overheated to crack down on speculation. The ratios are currently between 40 percent and 70 percent based on the type of property and loan maturity dates. The government lowered the ratios to 40 percent in general and 30 percent for households with at least one mortgage to pay back. All these regulations went into effect on Thursday.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]

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