Youth aged 39 or under buying a villa or officetel priced at 400 million won ($283,000) or less for the first time will be eligible for a loan-to-value ratio of up to 80% and an interest rate in the 3% range. [Yonhap]
Youth aged 39 or under buying a villa or officetel priced at 400 million won ($283,000) or less for the first time will be eligible for a loan-to-value ratio of up to 80% and an interest rate in the 3% range. [Yonhap]

Young buyers aged 39 or under will be able to take out a policy mortgage with a loan-to-value ratio of up to 80% and an annual interest rate in the 3% range when purchasing a villa or officetel priced at 400 million won ($283,000) or less for the first time. The product is set to launch in January. Young people in semi-jeonse arrangements will be able to secure guarantees on both their deposit and monthly rent in a single application, while the age ceiling for the special jeonse loan guarantee will be raised from 34 to 39.

The government announced the measures Thursday as part of a comprehensive financial package aimed at stabilizing the real estate market. The Financial Services Commission unveiled what it called a "three-part youth housing support package," pairing a dedicated product with each of three living arrangements — homeownership, semi-jeonse and jeonse.

The homeownership tier introduces the Youth Future Bogeumjari Loan, while the semi-jeonse tier adds a new combined jeonse-and-monthly-rent guarantee. On the jeonse side, the existing special youth jeonse loan guarantee will be broadened in both eligibility and limits. The first two products are targeted for a January launch; the expanded jeonse guarantee aims to take effect in October. All three will be supplied through the Korea Housing Finance Corp.

Youth mortgage capped at monthly-rent level; first-time buyer status preserved

The Youth Future Bogeumjari Loan under the homeownership tier will be offered on a two-year limited basis at an annual volume of 3 trillion won. It targets first-time buyers aged 39 or under purchasing a non-apartment home — a villa or officetel — of 85 square meters or less priced at no more than 400 million won. The LTV ceiling is 80% and the income cap is 70 million won a year. Young buyers seeking to purchase an apartment may continue to use the standard Bogeumjari Loan.

The interest rate is expected to land in the 3% range — roughly 2 percentage points below the standard Bogeumjari Loan rate of 4.90 to 5.20 percent. The FSC said the intent is to let young people buy a home while paying no more each month than they would in rent. Additional preferential rates will be available for borrowers living outside the greater Seoul area, those with lower incomes and households with newborns, with the cost of those subsidies covered by fiscal support.

In an example provided by the FSC, a buyer who borrows 200 million won at an 80% LTV to purchase a 250 million won home would owe a monthly principal-and-interest payment of 850,000 won on a 30-year term with the preferential rate applied. The FSC described the loan as a "stepping stone" for single-person youth households in Seoul paying 800,000 to 1 million won a month in rent before they can move into larger housing.

On the decision to set the price ceiling at 400 million won, the FSC said it first calculated the price range at which repayments could be kept at a monthly-rent level, noting that a 600 million won home would carry a heavy principal-and-interest burden even on a 30-year term at current rates. It also factored in data showing that the average price of small officetels favored by young buyers is around 400 million won in Seoul and around 300 million won across the greater metropolitan area.

Unlike the standard Bogeumjari Loan or the Didimdol Loan — where using the product exhausts the first-time buyer LTV benefit — this loan preserves that benefit in full: 70% in the greater Seoul area and regulated zones, and 80% elsewhere.

Asked whether the policy amounted to telling young people to live only in villas, the FSC said the aim is to give those paying monthly rent a chance to own a home, and that first-time buyer opportunities should not be used up prematurely. It added that apartments could be included as soon as next year depending on market conditions and uptake, and that the current restriction to non-apartments is a starting point, not a permanent exclusion.

On the age cap of 39, the FSC said policy mortgages and relaxed LTV requirements for low-income people in their 40s without homes — beyond the youth bracket — are already in operation.

Deposit and rent guaranteed together; no interest on months the credit line goes unused

A new combined jeonse-and-monthly-rent guarantee for the semi-jeonse tier will be established at an annual scale of 4.5 trillion won. Under the current system, borrowers must choose between a jeonse guarantee and a monthly rent guarantee, meaning young people paying both a deposit and monthly rent can only receive support for one. Going forward, a home with a 50 million won deposit and 1 million won monthly rent can have both loans guaranteed in a single application. The guarantee ratio is 100% — higher than the standard jeonse loan guarantee of 90%, or 80% in the greater Seoul area and regulated zones — and the ceiling is 90% of the lease deposit or 200 million won, whichever is lower.

The way monthly rent loans are disbursed will also change. Previously, the loan was drawn automatically each month in the amount of the rent, meaning interest accrued even in months when the borrower had spare funds. The new system works like an overdraft line of credit, allowing borrowers to draw only when needed, so no interest builds up in months when income covers expenses. The change reflects the irregular income patterns common among young people. Interest subsidies will also be available for low-income youth and those living outside the greater Seoul area.

On the jeonse side, the eligibility threshold for the existing special youth jeonse loan guarantee will be lowered. The age limit rises from 34 to 39 for young people without homes, and the income requirement is relaxed: the current combined spousal income cap of 70 million won will be replaced, for newlyweds, by a threshold of 70 million won for either spouse individually. The ceiling for newlywed and child-rearing households will increase from 200 million won to 300 million won. The 100% guarantee ratio remains unchanged. This measure is set to take effect in October — the earliest of the three components.

A separate measure to raise borrowing limits for young people takes effect at the end of this month. From Aug. 31, financial institutions will be required to inform borrowers whether they qualify for the future-income recognition standard under the debt service ratio framework and, if so, how much their borrowing limit would increase. Previously, application of the standard was left to each lender's discretion, and many borrowers were not offered it unless they specifically requested it. Because the standard factors in projected future earnings when calculating annual income, the FSC estimates that a 30-year-old borrower earning 40 million won a year would see their 30-year mortgage limit rise by 12.5% compared with the limit calculated without the standard.


psj@heraldcorp.com