🚨 Seoul Area Housing Loan Limited to 600 Million Won: Lee Jae-myung Government's First Real Estate Policy Impact and Outlook

Today Korean Economic News | 2025.06.28

📌 Strong Loan Rules to Control Household Debt…Multiple Home Owners and High Earners Hit Hard

💬 The Lee Jae-myung government started strong loan rules on June 28th, limiting housing mortgage loans to 600 million won in the Seoul area and regulated regions. This is the new government's first real estate policy, aiming to control growing household debt and stabilize housing prices. Previously, loan limits were decided based on income and house prices, but now 600 million won is the maximum for everyone. Additional measures include requiring people to move into the house within 6 months of getting the loan, and blocking additional loans for people who already own multiple homes. Limits on policy loans like Stepping Stone and Support loans have also been reduced, which will affect real buyers too.

1️⃣ Easy to Understand

The government has limited how much money people can borrow from banks to buy houses in the Seoul area to a maximum of 600 million won. This is a strong measure to stop household debt from growing and prevent housing prices from rising too fast.

A housing mortgage loan means borrowing money from a bank using your house as security. Until now, people with higher salaries or those wanting to buy expensive houses could borrow more money. For example, someone earning 200 million won per year who wanted to buy a 2 billion won house could previously borrow about 1.3 billion won.

But now, no matter how high your income is or how expensive the house is, you can only borrow up to 600 million won. This means if you want to buy a 2 billion won house, you need to prepare at least 1.4 billion won in cash. This greatly limits high earners and people buying multiple homes for investment.

The key points of the new rules are: First, you must move into the house within 6 months of getting the loan. This means the government only supports buying houses to live in, not for investment. Also, people who already own 2 or more houses cannot get additional mortgage loans.

The limits on low-interest government loans for ordinary people (Stepping Stone and Support loans) have also been reduced. This means first-time home buyers and newlyweds may find it harder to get loans than before.

This policy has two main goals. First, to stop household debt from growing more when it's already at 104% of GDP, the highest level among OECD countries. Second, to reduce investment demand, control housing price increases, and create an environment where real buyers can purchase homes.

In the end, this policy sends a strong signal to change from the practice of 'buying houses with borrowed money' to a culture of 'buying houses with your own money'.

2️⃣ Economic Terms

📕 Housing Mortgage Loan

A housing mortgage loan is a loan product where you borrow money from a bank using your house as security.

• You can usually borrow 60-80% of the house value, and the interest rate is lower than unsecured loans.
• The loan period is long (up to 30 years), so monthly payments are relatively small.
• You keep ownership of the house used as security, but if you can't repay the loan, it may go to auction.

📕 LTV (Loan To Value)

LTV shows the ratio of loan amount to house price.

• If a house costs 1 billion won and the loan is 600 million won, the LTV is 60%.
• The government controls loan sizes by setting different LTV limits for different regions and house types.
• Lower LTV means higher self-funded (cash) portion, making it a safer loan.

📕 DTI (Debt To Income)

DTI means the ratio of total debt payments to annual income.

• If your annual salary is 100 million won and yearly loan payments are 40 million won, DTI is 40%.
• Higher DTI means bigger loan burden compared to income, making loan approval stricter.
• Current DTI limit for Seoul area regulated regions is 40%.

📕 Regulated Regions

Regulated regions are areas designated by the government as speculation overheating zones and adjustment target areas.

• Mainly Seoul, Gyeonggi, Incheon and some major cities.
• In regulated regions, loan limits are lower and various regulations like heavy capital gains tax apply.
• The purpose is to control speculation demand and stabilize the market.

3️⃣ How It Works and Economic Outlook

✅ Policy Effects and Limits of Loan Restrictions

• Let's analyze how the 600 million won housing loan limit will affect the real estate market and household debt.

  • First, expensive house transactions will drop sharply and housing prices will face downward pressure. Houses over 1 billion won will see much less demand as loan dependency decreases greatly. For example, to buy a 1.5 billion won apartment, you could previously borrow about 900 million won, but now you can only borrow 600 million won, requiring 900 million won in cash. This effectively limits the pool of expensive house buyers significantly. Housing prices in major Seoul areas like Gangnam, Seocho, and Songpa are expected to face downward pressure. However, demand for smaller homes under 600 million won may relatively increase, possibly creating price polarization.

  • Second, household debt growth will clearly slow down, but side effects are also concerning. New mortgage loan amounts will decrease significantly due to loan limits, helping slow household debt growth. This is positive given that household debt is at 104% of GDP, the highest among OECD countries. However, if loan restrictions are too strict, even real buyers may have difficulty buying homes. Especially for middle-class people, house prices are high but loan limits are restricted, making home purchases even harder. Also, when bank loans are limited, there's risk of increased use of higher-interest second-tier financial institutions or private lending.

  • Third, structural changes in the real estate market are likely to accelerate. The gap between cash-rich people and others may widen as loan dependency decreases. However, long-term, speculative demand may decrease and transactions for actual living may increase, creating a healthier market structure. Development companies are also expected to focus on small to medium-sized homes that real buyers can purchase rather than expensive houses. This could help reduce housing market polarization.

• Loan limits may cause short-term market contraction, but are evaluated to contribute to creating a healthy real estate market in the long term.

✅ Different Effects on Real Buyers vs Investment Demand

• Let's look at the different impacts of new regulations on real buyers versus investment demand.

  • First, first-time home buyers and newlyweds will see mixed effects. Positively, reduced investment demand may lower housing price pressure, creating more opportunities to buy homes at relatively cheaper prices. Especially, less competition for small to medium homes under 600 million won may create favorable conditions for real buyers. However, limits on policy loans like Stepping Stone and Support loans have also been reduced, making it harder for real buyers to get loans than before. Particularly in the Seoul area, newlyweds need 700-800 million won to buy a decent-sized apartment, but with loan limits at 600 million won, their self-funded burden has increased.

  • Second, multiple home owners and investment buyers will face strong restrictions. Additional loan restrictions for people owning 2+ homes and the 6-month move-in requirement effectively block investment-purpose home purchases. Particularly, multiple home investments for rental business are expected to shrink greatly. Gap investment (buying houses with lease deposits) also becomes virtually impossible, likely causing investment demand to plummet. High-earning professionals and business owners will also find it difficult to own multiple homes, limiting wealth building through real estate.

  • Third, clear changes in demand by region and price range will appear. While transaction volumes in Seoul area regulated regions will shrink significantly, demand is expected to shift to non-regulated regions. Housing demand in outer Gyeonggi areas or provincial small cities may increase. By price range, transactions for expensive homes over 1 billion won will drop sharply, while attention will focus on mid-to-low price homes under 600 million won. This may relatively increase demand for small apartments or officetels.

• The differential effects of regulations are effective for the policy goal of suppressing speculation demand, but will have two-sided effects on real buyers.

✅ Ripple Effects on Financial Markets and the Overall Economy

• Let's analyze the broad impact that strengthened mortgage regulations will have on financial markets and the overall economy.

  • First, major changes are expected in banks' profitability and loan portfolios. Mortgages are one of banks' major revenue sources, and loan limits will significantly reduce new mortgage volumes. Accordingly, banks need to reorganize their portfolios toward corporate loans or other loan products. However, corporate loans are riskier than mortgages, and personal credit loans have higher interest rates, burdening borrowers more. Banks may consider raising loan interest rates to secure profitability, raising concerns about overall loan cost increases. Real estate-related fee income will also decrease, negatively affecting banks' overall profitability.

  • Second, contraction effects will appear in construction and real estate-related industries. Decreased housing transactions directly relate to construction companies' sales performance. Especially for expensive residential developments, demand decreases may lower sales rates, and some projects may be delayed or cancelled. Real estate agencies, interior companies, moving companies and other related service businesses will also see reduced sales due to lower transaction volumes. However, long-term, stable markets centered on real buyers may form, potentially increasing healthy housing supply. Particularly, supply of small to medium-sized homes is expected to expand.

  • Third, effects on consumption and the domestic economy must also be considered. Real estate transaction contraction leads to reduced consumption of furniture, appliances, interior goods, etc. Also, wealth effects from falling real estate prices may negatively affect consumer sentiment. Particularly, consumption by middle-aged people who hold real estate as major assets may shrink. Conversely, households with reduced loan burdens can use spare funds for other consumption, creating some positive effects. Overall, a pattern of short-term consumption contraction followed by gradual recovery is expected.

• Ripple effects on financial markets and the real economy are complex, and policy success depends on achieving policy goals while minimizing side effects.

4️⃣ In Conclusion

The Lee Jae-myung government's 600 million won mortgage limit is a groundbreaking policy that will bring significant changes to Korea's real estate market. Given the crisis situation of having the highest household debt among OECD countries, using strong loan regulations to solve structural problems is evaluated as a timely decision.

The biggest meaning of this policy is putting the brakes on the practice of 'buying houses with debt.' Until now, real estate investment commonly involved using loans and leverage, but now only people with cash mobilization ability can buy expensive houses. This will greatly suppress speculative demand and leave only healthy demand for actual living.

Particularly, additional loan restrictions for multiple home owners and the 6-month move-in requirement are powerful tools that fundamentally block investment-purpose home purchases. For investors who have been building real estate portfolios through rental business or gap investment, the rules of the game have completely changed.

However, side effects are also expected to be significant. Real buyers may also find it harder to get loans, making homeownership even more difficult, and the gap between cash-rich people and others may widen further. Also, real estate transaction contraction may cause difficulties for construction and related industries.

The important thing is achieving policy goals while minimizing such short-term side effects. Complementary measures for real buyers, expanding small to medium housing supply, and financial market stabilization measures should be pursued together.

Long-term, this policy could become a turning point that changes Korea's real estate market into a healthier and more sustainable structure. We hope it becomes an opportunity to develop into a mature real estate market that pursues actual living over speculation, self-funded capital over loans, and qualitative stability over quantitative expansion.

In the end, this policy is an attempt to change Korea's real estate paradigm beyond simple loan regulations. We expect successful achievement of policy goals through careful monitoring and appropriate complementary measures during policy implementation.