Banks reluctant to lend without clear guidelines on prior ownership exceptions
Authorities to issue rulings on inherited stakes, failed pre-sale contracts
Qualifying buyers eligible for 70% LTV in Greater Seoul, 80% elsewhere
If someone inherited a share of a home as a minor — without any say in the matter — and later sold it as an adult, can they still qualify for a first-time homebuyer mortgage? In principle, a prior ownership record disqualifies them. But under new rules, those with "unavoidable" circumstances will have a path to the first-time homebuyer loan-to-value ratio benefit. With banks hesitant to act without clear criteria, financial regulators have decided to issue case-by-case official interpretations.
Financial authorities plan to provide specific guidance on what qualifies as an "unavoidable circumstance" allowing lenders to apply the first-time homebuyer loan-to-value ratio even when a borrower has a prior ownership record, according to financial industry and regulatory sources Sunday.
Through the Aug. 13 real estate package, regulators had already allowed lenders to extend the first-time homebuyer loan-to-value ratio benefit — through a review by each bank's credit screening committee — to borrowers who acquired a housing stake involuntarily, such as through inheritance as a minor. Borrowers who qualify as first-time homebuyers are eligible for a loan-to-value ratio of 70 percent in the Greater Seoul area and regulated zones, and 80 percent in unregulated areas.
In practice, however, concerns emerged that the policy might not translate into actual loans. Regulators had emphasized banks' own discretion without issuing detailed guidelines, leaving lenders uncertain about which cases could be considered "unavoidable." Banks have also been wary of approving exceptions on their own, fearing scrutiny during future regulatory examinations.
This has raised the possibility that genuine homebuyers with a prior ownership record — but currently without a home — could receive inconsistent treatment depending on which bank they approach. Loan limits and home purchase plans could vary based on how individual banks interpret the rules.
Regulators plan to collect common queries from the banking sector through the Korea Federation of Banks and then issue specific responses. Questions already submitted are said to include cases where a pre-sale contract was never converted into actual homeownership due to a failed project, and cases where a borrower sold an inherited housing stake before applying for a first-time homebuyer mortgage.
"We plan to issue interpretations quickly for questions that banks have commonly raised," a financial authority official said.
The rulings are expected to reduce lending uncertainty for genuine buyers at a time when demand for first-time home purchases is rising rapidly. First-time buyer registrations for apartments, row houses and officetels in Seoul last month reached 9,343 — the highest in six years since August 2020.
Banks expect that once regulators issue their guidance, screening will become significantly clearer for genuine buyers whose ownership history arose through circumstances beyond their control, such as childhood inheritance or a collapsed pre-sale project. Differences in how individual banks assess such cases are also expected to narrow.
By contrast, industry observers expect relatively little confusion over restrictions on jeonse loans for "speculative non-resident single homeowners."
Regulators have defined a speculative non-resident single homeowner as someone who owns one apartment in the Greater Seoul area or a regulated zone, has rented it out and has never lived there, and have decided to restrict jeonse loans for such owners. Banks' credit screening committees may grant exceptions after reviewing whether the non-residency was unavoidable.
Banks believe they can apply existing standards used in jeonse loan screening — such as criteria for caring for elderly parents or relocating for work — to assess these cases. They also note that the number of eligible exceptions is likely to be small, making the assessment more straightforward than the first-time homebuyer loan-to-value ratio review.
"Standards for determining whether a loan reflects genuine housing need — such as caring for a parent or changing jobs — are already in place," a banking industry official said. "In broad terms, we should be able to apply those existing criteria to assess whether non-residency was unavoidable."
attom@heraldcorp.com
