Apartments in downtown Seoul as seen from Seoul Sky at Lotte World Tower in Songpa-gu, Seoul. Not directly related to the article. News1
President Lee Jae-myung has put forward 22 tasks aimed at removing what is called the “marriage penalty,” a response to growing property-related frustration among South Koreans in their 20s and 30s, including young adults and newlyweds. The government sees the disadvantages that marriage brings in borrowing, housing applications and taxation as a factor that can weigh on the fertility rate, warranting swift changes to the system.
Related ministries, including the Office for Government Policy Coordination, the Financial Services Commission and the Ministry of Land, Infrastructure and Transport, are discussing measures to carry out the president’s instructions, financial industry sources said on the 9th.
On the lending side, the government is pursuing easier income requirements for the Didimdol home-purchase loan, the Beotimmok jeonse loan and the Bogeumjari loan. It will also ease income requirements for loans to victims of jeonse fraud and expand eligibility for first-time home-purchase loans. Measures are also under review in housing applications, taxation, and welfare and housing to ensure that newlyweds and households with newborns face no disadvantages.
The government plans to sharply ease income requirements for newlyweds under its subsidized loan programs. Financial authorities and political circles have floated raising the cap to around 120 million won at a minimum. Subsidized loans, which allow borrowing at lower rates than commercial products, are available only to those below a set income threshold. For the Bogeumjari loan, the income cap for a single-person household is 70 million won or less, while for newlyweds combined income is capped at 85 million won or less. Despite both spouses working, the increase amounts to only 15 million won.
The government is reviewing a plan to raise the newlywed income requirement for the Bogeumjari and Didimdol loans, currently a combined 85 million won, to at least somewhere above 100 million won. The FSC set the Bogeumjari income cap at 70 million won in 2016, in line with the “upper income limit of the middle class.” The middle class is typically defined as 75% to 200% of the median income, and 200% of the median income for a two-person household this year is about 100.78 million won a year.
Late last year, the Anti-Corruption and Civil Rights Commission recommended raising the newlywed income threshold for subsidized loans to 130 million won, the average for urban worker households. The ruling Democratic Party of Korea also pledged during the June 3 local elections to raise the newlywed income threshold for the Didimdol loan to 120 million won.
The FSC likewise set 200% of the median income as the income requirement for the Youth Future Savings program launched in June, but lowered the bar to 250% of the median income for dual-income two-person households. For a two-person household, 250% of the median income or less means 125.98 million won a year or less. A senior government official said, “No exact figure or amount has been decided,” while adding, “When both spouses work at large companies, their combined salary far exceeds 100 million won. Given that, even a 100-million-won income cap is quite low.”
Eligibility requirements will also be eased for first-time home-purchase loans and special loans for households with newborns. For the first-time Bogeumjari loan, an application is possible only if neither spouse has ever owned a home. But at a public forum on housing policy last month, it was pointed out that “young adults who have lost their first-time eligibility because they inherited a partial stake in a property should be given relief.” Currently, under the Didimdol and Beotimmok loans, the newborn special program is available only to households that have given birth within the past two years, with an income cap of 130 million won or less (200 million won for dual-income households). Those requirements are also likely to be revised.
The government is also examining broader improvements, including a plan to switch the income requirement for subsidized loans to a median-income basis. Because the median income is calculated each year by the government to reflect price levels and household size, it can more flexibly reflect actual conditions. A senior government official said, “Using the median income is also under review,” while adding, “For now, raising the income threshold amounts is faster.”
The centerpiece of the property measures the FSC will announce this week is set to be expanded funding support for housing supply. Guarantees for real estate project financing (PF) provided through the Korea Housing Finance Corporation and the Korea Housing & Urban Guarantee Corporation (HUG) are expected to grow, and prudential rules on PF are likely to be eased.
Also under review is a plan to exempt group loans such as relocation and balance-payment loans, along with loans for young adults and newlyweds, from the household lending cap. Authorities are keeping their distance, however, from easing the loan-to-value (LTV) and debt service ratio (DSR) rules for young adults. A financial authority official said, “We are cautious about a plan to ease this year’s 1.5% target for household loan growth.”