Extra 1.5% interest rate coming to Seoul household loans on July 1

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Extra 1.5% interest rate coming to Seoul household loans on July 1

Published: 20 May. 2025, 16:24 Updated: 21 May. 2025, 14:15

Audio report: written by reporters, read by AI

Apartments in downtown Seoul are seen from Yeouido Square Tower in Yeouido, western Seoul, on Aug. 16, 2022. [YONHAP]

Middle- and low-income households in the Seoul metropolitan area with limited cash reserves may perceive a “now or never” rush to purchase a house with the third phase of the newly strict stress debt service ratio (DSR) rules set to take effect on July 1. However, since the implementation is a “predicted variable,” it is unlikely to impact the real estate market as much as last year's rollout the second phase implementation did.

The Financial Services Commission announced Tuesday that the core of the third-phase stress DSR policy is to reduce loan limits and apply differentiated loan interest rates between the Seoul metropolitan area and noncapital regions.

The metropolitan area will see an additional 1.5 percent interest applied to all household loans, while the current additional interest rate of 0.75 percent will be maintained in noncapital regions for six months.

Last year, ahead of the implementation of the second-phase stress DSR in September, the real estate markets in Seoul and Gyeonggi fluctuated dramatically. Initially scheduled for July, the implementation was postponed by two months due to funding difficulties among vulnerable borrowers.

In Seoul, apartment transactions, which ranged between 2,700 and 5,300 cases from January to May 2024, surged to 7,938 in June and 9,226 in July due to last-minute demand.

However, in September 2024, the figure plummeted to 3,181. Gyeonggi also saw its transaction volume rise from around 10,000 cases early in the year to 28,779 in July, before falling back to the 10,000 range in September.

Apartment buildings in Apgujeong, Gangnam District, southern Seoul, are pictured in this photo taken May 7. [YONHAP]

A similar last-minute surge in demand may occur during the remaining 50 days.

“Middle- and low-income households sometimes fail to purchase homes because they are short by just tens of millions of won,” said Park Hap-soo, an adjunct professor at Konkuk University's Graduate School of Real Estate Studies. “Loan demand will likely increase before the loan cap is reduced in July.”

However, experts widely agree that the new policy will have limited impact on housing prices.

“Transaction volume may fall, but due to a decrease in Seoul apartment listings, sluggish presale activity and expectations of a base rate cut, the drop in housing demand will be modest,” said Ham Young-jin, head of the real estate research lab at Woori Bank.

“In Seoul, pre-emptive demand concentrated in March and April, so the buying trend will likely slow in the second half,” said Park Won-gap, chief real estate expert at KB Kookmin Bank. “Due to the launch of a new government, rate cuts and a supply shortage, home prices will either remain steady or slightly rise.”

An apartment complex in Korea [JOONGANG ILBO]

The buying trend in high-demand areas in Seoul and the surrounding metropolitan region is also unlikely to subside. Premium districts like Gangnam District, southern Seoul, are already designated as land transaction permit zones.

Additionally, due to low rent-to-price ratios, gap investment is difficult. Since homes priced above 2 billion won ($1.44 million) are often purchased with cash rather than mortgage financing, the impact of loan regulations is limited.

In contrast, noncapital regions where the third-phase DSR application will be deferred by six months are also expected to experience minimal impact.

“Although the differentiated interest rates are relatively favorable for noncapital areas, the small interest gap compared to the metropolitan area limits their appeal to buyers,” said Lee Eun-hyung, a Korea Research Institute for Construction Policy researcher.

“Aside from a few cities like Sejong, oversupply and weak demand persist in many noncapital areas,” said Ham. “This policy will merely help prevent further contraction in those markets.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM TAE-YUN [[email protected]]