# **_Lowering the LTV ratio in 2002 and 2003_**

In September 2002, the FSS required banks to lower the LTV ratio on mortgage loans to below 60 percent of the value of the borrower-pledged real property from the prevailing 70 percent to 80 percent. In June 2003, the LTV ratio was lowered from 60 to 50 percent for loans with maturity of 3 years or less and backed by real properties located in speculative areas (Table 2).

Table 2. LTV Ratios, June 2003

||Speculati<br>House<sup>c</sup>|on Zone<sup>a</sup><br>Apartment|Overheated Spe<br>House<sup>c</sup>|culation District<sup>b</sup><br>Apartment|Other<br>House<sup>c</sup>|Areas<br>Apartment|
|---|---|---|---|---|---|---|
|**Not more than 3 years**|**50% or less**|**50% or less**|**50% or less**|**50% or less**|60% or less|60% or less|
|More than 3 years|60% or less|60% or less|60% or less|60% or less|60% or less|60% or less|

_Source_ : FSS.

a. An area designated by the Minister of Strategy and Finance pursuant to the Article 104-2 of the Income Tax Act.

b. An area designated by the Minister of Land, Transport and Maritime Affairs or the Mayor/Provincial Governor pursuant to the provisions of Article 41 of the Housing Act.

c. Refers to houses excluding apartments and apartments for commercial and residential purposes.

In October 2003, the LTV ratio for loans with 10 years or less maturity and backed by apartment units in speculative areas was further reduced from 50 percent to 40 percent (Table 3).

Table 3. LTV Ratios, October 2003

||**Speculat**|**ion Zone**|Overheated Spe|culation District|<br>Othe|r Areas|
|---|---|---|---|---|---|---|
||House|**Apartment**|House|Apartment|House|Apartment|
|**Not more than 3 years**|50% or less|**40% or less**|50% or less|50% or less|60% or less|60% or less|
|**More than 3yrs but not more than 10yrs**|60% or less|**40% or less**|60% or less|60% or less|60% or less|60% or less|
|More than 10 yrs|60% or less|60% or less|60% or less|60% or less|60% or less|60% or less|

_Source_ : FSS.

# **_Adjusting the LTV ratio upward in 2004_**

In 2003, government intervention, including the prudential measures, successfully resulted in the slowing of the growth in housing prices. As a consequence, there were fewer loan defaults and the growth of new loans was slowed. In March 2004, the FSS raised the LTV ratio from 60 percent to 70 percent for mortgage loans not generally used for speculative purposes: those with a maturity of 10 years or more and less than one year of interest-only payments (Table 4). This step aimed to promote longer maturity by addressing the short-term maturity structure of mortgage loans. The FSS did this to address concerns that excessively low LTV ratios were unfair to both borrowers and non-speculative homebuyers.

Table 4. LTV Ratios, March 2004

||Speculat<br>|ion Zone<br>|Overheated<br>Dis<br>|Speculation<br>trict<br>|Other<br>|Areas<br>|
|---|---|---|---|---|---|---|
||House|Apartment|House|Apartment|House|Apartment|
|Not more than 3 years|50% or less|40% or less|50% or less|50% or less|60% or less|60% or less|
|More than 3yrs but not more than 10yrs|60% or less|40% or less|60% or less|60% or less|60% or less|60% or less|
|More than 10 yrs|60% or less|60% or less|60% or less|60% or less|60% or less|60% or less|
|**Payment in installments(10yrs or more)**<sup>**a**</sup>|**70% or less**|**70% or less**|**70% or less**|**70% or less**|**70% or less**|**70% or less**|

_Source_ : FSS.

a. Refers to loans with fixed interest rates (and a grace period of one year or less, DTI of 40% or less), having a plan to sell the loan to the Korea Housing Finance Corporation or a plan for self-securitization.

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