SEOUL, June 19 (Xinhua) -- South Korea on Monday unveiled the first measures under the new government to control real estate speculation and reduce mortgage loans amid massive household debts.
According to the joint press release by the finance and construction ministries and the financial regulator, the number of areas in which the resale and purchase of new apartments are restricted will be raised from 37 to 40 across the country.
The 40 districts are located in capital Seoul and its surrounding Gyeonggi province, in which about half of the total 50 million national population live, as well as the southern port city of Busan, where speculative investments in real estate were estimated to have formed a bubble.
South Korea's household debts have reached a record high and are still on the rise as eased mortgage financing continues to encourage people to buy new homes with borrowed money.
The Bank of Korea (BOK) cut its benchmark interest rate from 3.25 percent in July 2012 to an all-time low of 1.25 percent, helping boost real estate speculation.
The country's top central banker recently mentioned the need for a rate hike. The U.S. Federal Reserve raised its policy rate to a range of 1.00-1.25 percent, coming closer to South Korea's benchmark rate.
Higher interest rates here would increase debt-serving burden for households already struggling to repay debts amid the growing income inequality and the rising number of irregular workers.
To reduce the massive household debts, the financial regulator will tighten the loan-to-value (LTV) and debt-to-income (DTI) ratios in the designated 40 districts.
The LTV ratio will be decreased from 70 percent to 60 percent, with the DTI ratio from 60 percent to 50 percent.
