South Korea says to toughen home-backed lending

July 6, 2009

   SEOUL, July 6 (Reuters) – South Korea will toughen mortgage lending by broadening tight loan ceilings to the whole of Seoul and surrounding cities from Tuesday, a regulator said on Monday, amid signs of possible asset price bubbles.
   The move by the Financial Supervisory Service (FSS) follows a survey by the Bank of Korea, which showed South Korean banks were more willing to expand lending to companies and households in the current quarter on expectations for an improving business environment. [ID:nSEO325874]
   “With a surge in home-backed loans raising concern about a possible deterioration in the debt-servicing abilities of households and instability in the financial system, the Financial Supervisory Service called on banks to strengthen risk management against rising home-backed loans,” the regulatory agency said in a statement.
   Under the guidance, banks will be required to cut the ceiling to 50 percent of the market price of a home worth 600 million won ($472,800) or more, from 60 percent at present, starting from new loans provided from Tuesday onwards.
   Currently, the rule limiting mortgage loans on the basis of loan-to-value ratios is applied to three areas in Seoul where speculative trade has caused a spike in housing prices.
   The decision comes after the country’s policymakers cautioned against increased liquidity in financial markets after a string of interest rate cuts and government stimulus spending, which sparked speculation of an interest rate increase.
   Financial regulators have tried to stem rising home-backed loans, which increased by a net 3 trillion won per month from January through May.
   South Korea’s housing prices in June rose for a third consecutive month, data showed last week. [ID:nSEO144812]
 ($1=1269.0 Won)

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