The Korea Herald

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Korea to ease debts for troubled mortgage holders

By Korea Herald

Published : May 6, 2013 - 20:04

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South Korea’s financial regulator said Monday it will start a debt relief program from next month for troubled homeowners as part of its key policy plan to ease the record-high household debt amid a faltering property market.

The Financial Services Commission, the country’s top financial watchdog, said it will impose the initial loan-to-value ratio to a mortgage even if the price of the house fell due to the sluggish real estate market. The LTV refers to a tool used by banks to restrict the maximum amount of money that a homebuyer can borrow within the limit of the value of their collateral. The current limit is on average 60 percent.

For example, when a person buys a house worth 500 million won ($465,537) at market price, he can only take out a mortgage of up to 300 million won from a bank.

But homebuyers under the LTV rule have been struggling with mounting debts as the slump in the local real estate sector began to depreciate their house values, spawning what’s dubbed the “house poor” here. The house poor are borrowers who took out heavy mortgages during the housing boom, but now face severe repayment burdens due to price falls. (Yonhap News)